The Hon. Greg Hunt MP

Minister for the Environment

The Hon. Greg Hunt MP

Minister for the Environment

Carbon Farming and Direct Action

Paper to the National Carbon Farming Conference
18 March 2014

Introduction

Towards the end of 2012, I spoke at the Carbon Farmers Australia conference in Dubbo and presented the Coalition's blueprint for a stronger Australia, including our plans for a stronger economy and cleaner environment.

I spoke there at the invitation of Michael and Louisa Kiely. I’ve known the Kielys for several years and greatly appreciate their passion and commitment to helping farmers and land managers gain access to carbon markets.

It gives me great pleasure to return and speak to you today as Minister for the Environment and to provide an update on the progress we are making in putting our plans into action.

I would like to take this opportunity to talk about our Direct Action plan and the opportunities it presents for the land sector, as well as the future of the Carbon Farming Initiative.  I will also address some of the issues and questions that members of this audience and others in the land sector have raised about our Emissions Reduction Fund.

It’s worth framing this discussion within the context of our overall policy, so before I get down to specifics, allow me to briefly outline the Coalition Government's Plan for a Cleaner Environment.

A Plan for a Cleaner Environment

Our environment plan rests on four pillars: Clean Air, Clean Land, Clean Water and Heritage Protection.

This plan is an essential element of our national policy framework and encompasses simple, practical actions that will achieve real, measurable results.

Clean Air centres on two important reforms: the abolition of the Carbon Tax and the implementation of our Direct Action plan, which I will discuss in detail later.

The Coalition Government is committed to our unconditional emissions reduction target to reduce Australia’s emissions by five per cent below 2000 levels by 2020. However, the Government believes there is a fundamentally better way to meet this commitment than through a Carbon Tax.

Our commitment to abolish the Carbon Tax is not a disagreement over belief, science or targets. Rather, we will abolish the tax because it represents ever increasing financial pain for no real environmental gain. Under the Carbon Tax, our domestic emissions are projected to go up, not down. In this light, scrapping the Carbon Tax is the only responsible course of action.

We are repealing the Carbon Tax to reduce costs for households and business and to pave the way for our Direct Action plan. Abolishing the tax will flow through to businesses in the form of lower input costs and to households through lower energy bills and cheaper household items.

Legislation to repeal the Carbon Tax was the first item of business introduced by the Government into the new Parliament. The House of Representatives has now passed the Carbon Tax repeal bills and they are currently before the Senate. The Carbon Tax will be replaced by our Direct Action plan.

Clean Land encompasses the Green Army, Landcare reform and environmental approvals simplification, otherwise known as the One Stop Shop.

The Green Army, when fully operational, will see 15,000 young people deployed across Australia to work on local environmental priorities.

The Green Army will generate real and lasting benefits for the environment. Many of you will have seen that I released legislation to establish the Green Army at the end of last month.

In addition, the Coalition is placing Landcare back at the centre of our land management programs, based on three principles: simple, local and long-term. It is recognition of the valuable work local Landcare groups undertake.

The third element of our Clean Land policy - the One-Stop-Shop - centres on streamlining environmental approvals while maintaining the same high standards. A simpler environmental approvals process with a single entry point across jurisdictions will create a nationally competitive advantage for Australia.

We have already made significant inroads with this agenda. Memoranda of understanding have now been signed with all jurisdictions and the development of bilateral agreements is well underway.

Perhaps Australia's most important natural asset - the Great Barrier Reef - is a particular focus of the Clean Water strategy. Our Reef 2050 plan will tackle the risks to reef health with a $40 million Reef Trust to fund major projects.

Other elements of Clean Water include the 10-point Murray-Darling plan and the National Water Security plan.

The primary goal of the final pillar, Heritage Protection, is to instil a new sense of pride in Australia's heritage. We are developing a new National Heritage Strategy and are placing greater focus on support for community heritage projects. We want to help local communities across Australia tell their stories and showcase their local history.

Together, these four pillars form the backbone of the Government's plan for the environment.

These pillars support our vision that households, businesses and communities are best placed to get on with the business of responsible air, land, water and heritage management.

The plan will provide for a strong economy and a healthy environment and since the election we’ve been getting on with the job of implementing this plan.

I would like to turn now to the element of our Plan for a Cleaner Environment that will be of particular interest to those here today: the Emissions Reduction Fund. In particular the opportunities that it will provide for the land sector - opportunities that will help Australia’s regions become even more vibrant, productive and liveable.

Emissions Reduction Fund

Many of you here today will already be familiar with our Direct Action plan and its key components. Indeed, I have spoken at length with many of you personally about these.

You will also know that at the heart of the plan is the Emissions Reduction Fund.

The Fund will create positive incentives to reduce Australia’s emissions: incentives for businesses to innovate and invest in new technologies, incentives to improve the efficiency and productivity of businesses’ operations and incentives to encourage farmers and landholders to store carbon on the land.

With an initial allocation of $300 million, $500 million and $750 million over three years, the Fund will establish a pool of capital to create a market for abatement. This will be far more effective at reducing Australia's emissions than the Carbon Tax.

This Fund is being designed to provide a powerful and direct incentive for businesses, farmers and landholders across Australia to identify and take up opportunities to reduce their emissions, or to store carbon in the land.

Design of the ERF

Allow me to briefly recap some of the main design features of the Emissions Reduction Fund.

The Fund will buy abatement. Auction processes are a well-established market mechanism and will allow the Government to achieve our environmental objectives while minimising costs.

By buying up the 'abatement cost curve' we will provide powerful incentives for businesses to bring forward the lowest cost emissions reduction projects.

The Fund will create a market for abatement in the same way that the National Water Market System has created a market for water. The latter system also relies on an auction process and has proven effective in allowing the Government to minimise costs, while achieving additional water flows.

Late last year, the Government released a Green Paper setting out design options for the Fund.

The Green Paper also set out three high level principles that are guiding our decisions:

  • First, emissions reductions must be genuine and go beyond 'business-as-usual'
  • Second, the Fund will be designed to encourage projects to deliver lowest cost abatement
  • Third, administration of the Fund should be streamlined and cost-effective.

Emissions reductions to be unlocked by the ERF

I'm often asked where the emissions reductions will come from. The reality is we are not being prescriptive about the source of potential abatement. In fact, we are keen to unlock abatement opportunities across the Australian economy - from businesses, industries and especially the land sector.

The lowest cost abatement may involve projects to clean up waste coal mine gas, clean up power stations or capture landfill gas. It may be a mix of energy efficiency improvements in Australian buildings and industrial facilities.

It may be reafforestation of marginal lands, or revegetation, or improvement of soil carbon.

The important thing is not where the emissions reductions are achieved, but that they are real, genuine and additional to business-as-usual.

The Fund will offer a range of opportunities for Australia’s regions and the land sector - not only to reduce emissions or sequester carbon, but to increase productivity as well.

Consultation on the Emissions Reduction Fund

As many of you are aware, over the past months we have been consulting widely on the design of the Fund and have received a strong and considered response to our invitation to provide input.

We received more than 280 submissions in response to the Terms of Reference we released in October and over 300 more in response to the Green Paper. Many of these related to the land sector. We have also had in-depth discussions with business, environment and community representatives from across the Australian economy.

Key themes raised during consultations

Allow me to briefly highlight some of the common themes that were raised during these consultations:

  • Stakeholders have told us that significant opportunities exist for reducing emissions in Australia, and these opportunities will also deliver valuable environmental benefits and cost savings
  • Stakeholders have told us that three design features will be important in unlocking these opportunities:
    • First, we need to develop simple ways to calculate genuine emissions reductions
    • Second, we need to keep transaction costs low
    • Third, we need to build on the strengths of existing platforms, including the National Greenhouse and Energy Reporting Scheme and - especially - the Carbon Farming Initiative.

These messages mirror the design principles we have set for the Fund. Therefore, it gives me great confidence that the Fund - true to these principles - will be well-supported by business and the community. 

I have complete confidence that it will be a highly effective, low-cost mechanism that will help Australia to meet our emissions reduction target.

Carbon Farming Initiative and the ERF

I’d like to spend a few moments talking about the future of the Carbon Farming Initiative. This, I’m sure, is an issue that will be of considerable interest to many of you here.

The Coalition Government is a strong supporter of the CFI.  We have championed it both in opposition and in Government.

We have supported it because we recognise that there are considerable opportunities in the land sector to reduce emissions and sequester carbon. That is why we have made it the backbone of the Emissions Reduction Fund.

At the moment, however, the CFI is not as well-designed as we’d like it to be.  It can be better, stronger, simpler and more streamlined.

As we think through the final design of the Emissions Reduction Fund, front and centre in our deliberations is the question of how we can improve the CFI and make it easier for farmers and landholders to participate.

There are two issues that I’d like to briefly discuss today that illustrate how the CFI can be easily improved.

Key themes raised by the land sector – Permanence

First, many of you will be aware of the CFI’s rules concerning permanence.  As the CFI is designed today, projects that sequester carbon in the land - either under existing methods focussing on vegetation or under future methods for soil carbon - must agree to maintain the carbon on that land for 100 years, or to hand back credits issued for that project.

Now, this rule exists to align the CFI with approaches applied in comparable schemes overseas. In principle, this is not a bad idea because it means that the market sees CFI credits as being reliable, and therefore valuable.

The problem is that landholders are simply not interested in taking on these obligations on their land for 100 years.

It’s not that landholders object to storing carbon in forests, vegetation and - in the future - soils. In fact, I’ve talked to many farmers who would be quite prepared to help the environment by seeing permanent forests established on their properties.

Rather, it is the quite understandable reluctance to commit farmland to a particular form of management for 100 years.

The Coalition believes that there’s not much point in having the most rigorous, gold-plated carbon sequestration rules in the world if it means that nobody participates.

For this reason, the Coalition went to the election last year with the commitment to streamline these rules while maintaining their scientific credibility. We promised that we would introduce a 25-year option for carbon sequestration projects.  The Government intends to deliver on this promise.

Farmers could have the option of storing carbon for 100 years, and the CFI would credit this appropriately. But farmers could also be able to store carbon for a shorter, more realistic period, and retain the situation where their children can decide whether they want to continue this enterprise.

Key themes raised by the land sector – Streamlining method approvals

The second issue raised by stakeholders is that unnecessary ‘green tape’ is preventing projects from being brought forward under the CFI.

Under its current design, the CFI includes a ‘positive list’ process to assess whether an emissions reduction activity is eligible for crediting. To include project types on the positive list, a ‘common practice’ test is applied to assess whether land sector activities are additional to business as usual. Once an activity is on the positive list, a second process must then take place to establish a methodology for that activity which projects must satisfy.

The message we have received is that this process is administratively onerous and has contributed to unnecessary delays in implementing new projects. It is a message which we have heard loud and clear.

We will be streamlining the method approval process to make it faster, more flexible and less complex. 

In pursuing this goal, we will not diminish the scientific integrity of methods.  To do so would be in nobody’s interests. Therefore, it will continue to be the case that emissions reductions credited by the CFI must be real, genuine and additional.

However, we will remove unnecessary green tape and make it easier, faster and more attractive for farmers and landholders to participate in the CFI.

I will have more to say in coming weeks about these and other reforms that will streamline and strengthen the Carbon Farming Initiative.

Next steps

Over the past few months, stakeholders have raised a wide range of issues that are absolutely critical to the design of the Emissions Reduction Fund and to its successful implementation. 

Many of these issues we had already started thinking about, but many others we had not. 

This whole process has reinforced to me the absolute necessity of casting the net far and wide when designing critical policy that affects households and businesses across the country. 

I wish to thank everyone who has given so generously of their time and expertise to bring us to this stage of the Fund's design. We were serious about this process being a full, honest and open consultation, where all ideas would be welcome.

As we move to the next phase of implementing the Emissions Reduction Fund, I hope that we can build on the relationships that have been established through the process to date.

In the coming weeks, we will be releasing the Emissions Reduction Fund White Paper, which will outline the final design of the Fund. 

The White Paper will set out the key messages that we have heard through our discussions with industry, businesses, land sector representatives and the community, and through absorbing the tremendous amount of information contained in the submissions on the Terms of Reference and Green Paper.

We will also release exposure draft legislation for the Emissions Reduction Fund, which will include amendments to the legislation that underpins the CFI. Your views on this draft legislation will be welcome.

In the meantime, we are continuing to develop new methods that will allow farmers and landholders to unlock further abatement opportunities.

Soil Carbon

One exciting new development which I would like to share with you today is our progress on developing a soil carbon methodology.

I would like to take this opportunity to formally announce that the land management activity ‘sequestering carbon in soil in grazing systems’ will be added to the Carbon Farming Initiative Regulations—the ‘positive list’ of activities that reduce greenhouse gases.

This brings farmers and landholders a crucial step closer to being able to participate in the Carbon Farming Initiative and the proposed Emissions Reduction Fund by storing carbon in their soil and contributing to direct action on climate change.

It paves the way for developing methodologies for soil carbon sequestration, under which projects can participate in the Emissions Reduction Fund.

In addition to removing carbon from the atmosphere, sequestering carbon in agricultural soils can increase farm productivity through improved soil structure, water-holding capacity and fertility.

Under an approved soil carbon methodology, farmers keen to improve the condition of their land would have the added benefit of being able to earn revenue from abatement projects that build carbon in their soils.

Landholders will earn carbon credits for abatement and will be able to participate in the Emissions Reduction Fund reverse auctions for the Government to purchase these credits.

The Government is continuing its work with landholders, scientists and key interest groups to develop the methodology for building soil carbon in grazing systems.

This methodology will set out the rules for undertaking the activity and for estimating the resulting sequestration through direct measurement of soil carbon levels.

This initial methodology is expected to be ready in mid 2014, in time for land managers with soil carbon sequestration projects to participate in early rounds of the Emissions Reduction Fund soon after its commencement on 1 July 2014.

The Government will develop further soil carbon methodologies, including for other agricultural land uses, which will begin to become operational from late 2014.

Ultimately landholders will be able to choose from a number of different measurement and model based soil carbon methodologies that best cater for the unique commercial and environmental characteristics of their project.

I would like to thank the farmers, scientists, researchers and land managers - many of whom are here in the audience today - of the stakeholder and technical working groups who have contributed their time, energy and experience to help the Government develop this methodology.

Conclusion

To conclude, I'd like to reaffirm the Government's commitment to helping Australian farmers and landholders to be innovative leaders in our society.

Our Direct Action plan to tackle climate change will provide incentives for farmers and the land sector to cut emissions and store carbon in the land.

We will not work in isolation in shaping the Fund's design and ongoing implementation - that is why we have maintained our commitment to consulting as broadly as possible. We want to give you confidence and security that this policy will be efficient and effective.

To stand the test of time, a plan to address climate change must protect Australian strengths, like our regional industries and communities.

Protecting the environment and economic growth are not mutually exclusive objectives, but rather two essential elements of a single goal of a stronger Australia.

Thank you.

Greg Hunt

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