Getting the Legals RightGrant Parker, Partner

Carbon Farming Conference 23 October 2012

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Overview What type of Carbon Farming Initiative project?

� sequestration or emissions avoidance?� Kyoto (compliance) or non-Kyoto (voluntary)?

Is the methodology approved? How should the project be structured? Getting the contracts right What constraints will the project place on future

use of the land? Conclusion

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What type of CFI project? Emissions avoidance project or sequestration

project Kyoto project or non-Kyoto project Kyoto project credits usable in Australian

compliance market and potentially in international compliance markets, e.g. European Union from 2018

Non-Kyoto project credits usable in Australian voluntary market and potentially in international voluntary markets

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Is the methodology approved? Methodologies must be approved by Minister,

which requires compliance with offsets integrity standards� additionality, i.e. on ‘positive list’� measurable� verifiable� supported by peer-reviewed scientific results� deduction for ‘leakage’ caused outside project� sequestration project to take account of significant cyclical

variations in carbon sequestered over 100 years� conservative

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How should the project be structured? Clean Energy Regulator cannot declare project

eligible unless� methodology� applicant is project proponent� applicant is recognised offsets entity� for sequestration projects

certain types of Crown land require relevant Minister’s consent

each person holding an ‘eligible interest’ (being a legal interest in the land) has consented, e.g. lessor, mortgagor

� project is not an ‘excluded offsets project’, i.e. not on ‘negative list’

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How should the project be structured? Credits can only be issued to person who is

both a recognised offsets entity and the project proponent

Project proponent for sequestration project must hold carbon sequestration right for project area

Project proponent responsible for submitting offsets report to Regulator for each reporting period

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How should the project be structured? Marketability of volume of credits likely to be

generated will affect whether aggregation required

Australian Financial Services Licence for dealing in credits unless doing on own behalf

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Getting the contracts right Allocation of returns, responsibilities and risks

� credits only issued at end of reporting period upfront payment by project developer? automatic sale into market or ability to hold? what if credits generated are greater or lesser than

anticipated?

� responsibility for compliance with CFI legislation obligations allocated

� project costs addressed, e.g. auditing� appropriate insurances considered and obtained

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Constraints on future use of land For sequestration projects

� registration or notation of project on land title governed by differing legislation in States and Territories

� carbon maintenance obligation may be registered on title in limited circumstances

� voluntary withdrawal requires handback of credits unissued or their equivalent

� consider how project with affect marketability of land on sale

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Conclusion Undertaking a CFI project requires careful

consideration A reasonable degree of knowledge is required

to prepare or review a proposal for a project A project will not proceed if there is not an

approved methodology Consider the marketability of the credits

generated Get the project structure right at the outset

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Conclusion Get the right contracts prepared and reviewed Make sure the project doesn’t adversely affect

the value of your asset

Thank you