THE lure of a financial windfall with environmental benefits has many South Australian primary producers pondering whether to branch out into carbon farming.
While stories of projects forecasting multi-million dollar pay offs are making the headlines, the legal implications are not so widely understood. Unless due diligence extends well beyond the pure number crunching, farmers may be entering into a contract with unexpected consequences for generations to come.
In 2015 the Australian government established the Emissions Reduction Fund in an effort to reduce Australia's greenhouse gas emissions.
The Fund is a voluntary scheme that incentivises farmers and businesses to reduce their carbon dioxide emissions and/or increase the storage of carbon in their soil/vegetation through the adoption of new practices and technologies, such as carbon farming.
These projects must meet eligibility criteria and be registered with the Australian Clean Energy Regulator in order to participate in the Fund.
According to data from the regulator, more than 1000 registered projects are delivering carbon abatement benefits across Australia - with about 4 per cent in SA.
Just last month, it was reported that two pastoral stations in the state's outback, Buckleboo and Yudnapinna, had signed on for large carbon farming projects.
Technological advancements, together with greater industry awareness and acceptance, have led to the number of such projects in Australia rise significantly in recent times, with this trend expected to continue.
There are a number of legal issues that primary producers may need to consider before participating in a carbon farming project, including:
- The business model used to facilitate the project - will the landowner establish and maintain the project themselves or work with a project developer?
- The contractual arrangement behind the business model
- Whether the landowner holds an "eligible interest" in the land - this is particularly an issue for land subject to a pastoral lease or native title agreements
- Whether the land is subject to a mortgage - mortgagee consent is required for the project and is often contentious to obtain as the project can be at odds with the rights of the mortgagee
- The process of obtaining and establishing a carbon abatement contract with the Regulator if credits sold to the Commonwealth
- The terms of the contract for sale if credits sold to the private sector
- Compliance with, and ongoing management of, the relevant contracts, including testing requirements, delivery and payments .
- Compliance with ongoing reporting and auditing requirements.
Buyers of farming land should inquire if it is subject to a carbon farming project as the costs and benefits of the project may need to be factored into the sale price.
The buyer's financier may also take the carbon farming project into consideration in its valuation.
Primary producers who are participating in a carbon farming project should consider whether the terms of their contracts are likely to be acceptable to prospective buyers.
A carbon farming project can have a lifespan between 10 and 100 years so obtaining legal advice at the outset and taking a long-term view is paramount.
- Sam Richardson is a director at commercial law firm Cowell Clarke.
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