Getting the Legals Right Grant Parker, Partner Carbon Farming Conference 23 October 2012

2 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

3 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

4 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

5 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’

6 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

7 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

8 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

9 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

10 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

11 Conclusion  Get the right contracts prepared and reviewed  Make sure the project doesn’t adversely affect the value of your asset

Thank you