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Climate Change Alert: Amendments to the Land Title Act and Land Act: Registration of Carbon Abatement Interests - 28 Oct 2011

Amendments to the Land Title Act 1994 and Land Act 1994, introduced to meet certain requirements under the Federal Government's Carbon Farming Initiative, will have a significant impact on land owners once the Government's carbon trading scheme is operational.

The amendments have been introduced to allow Carbon Abatement Interests to be registered on the Land Title Register, which will give a grantee of a Carbon Abatement Interest the exclusive right to any economic benefit associated with the carbon sequestration of the land.

Here, senior associate Angie Coleman outlines the amendments to the Land Title Act and Land Act contained in the Waste Reduction and Recycling Bill 2011 that relate to the registration of Carbon Abatement Interests. These amendments are to come into effect on a day to be fixed by proclamation. At this stage no indication has been given as to when that will be. However, we anticipate that the amendments will be fixed before the carbon pricing mechanism commences on 1 July 2012.

Key points for land owners

  • The Commonwealth Carbon Credits (Carbon Farming Initiative) Act 2011 sets up a scheme to issue Australian Carbon Credit Units for declared eligible sequestration offset projects.
  • If you are a land owner seeking to obtain approval from the Federal Government for a carbon sequestration offset project, you will need to ensure that a Carbon Abatement Interest is first registered in the Titles Office before you apply for the registration and approval of these projects.
  • Purchasers of land with registered Carbon Abatement Interests will need to become fully aware of the agreement that is in place between the relevant parties to the Interest. Any land purchase will be subject to the terms of the Interest, unless alternative arrangements are made to surrender or amend the Interest before settlement.

Why this legislation has been changed

The Waste Reduction and Recycling Bill 2011 was introduced into parliament earlier this year, and was passed on 12 October 2011.

The rationale behind these amendments relates to the Federal Government's Carbon Farming Initiative and the Commonwealth Carbon Credits (Carbon Farming Initiative) Act 2011.

Under the Carbon Farming Initiative, landholders may establish land-based carbon abatement and sequestration projects that generate tradeable carbon credits known as Australian Carbon Credit Units, which can then be sold domestically or internationally.

Generally, for a project to qualify under the Carbon Farming Initiative, it must first be declared by the administrator of the Initiative to be an 'eligible offsets project', meaning it must either be:

  • an emissions avoidance offsets project; or
  • a sequestration offsets project.

Sequestration offsets projects are projects that sequester (or capture) atmospheric carbon dioxide in, and/or avoid greenhouse gas emissions from, living biomass (eg forests), dead organic matter (eg leaf litter) or soil. Examples of sequestration offset projects are those that include:

  • reforestation;
  • revegetation;
  • native forest preservation;
  • avoided de-vegetation;
  • improved forest or vegetation management;
  • reduced forest degradation;
  • forest or rangeland restoration;
  • enhanced or managed regrowth; and
  • enhanced soil carbon (in certain circumstances).

The Commonwealth Carbon Credits (Carbon Farming Initiative) Act 2011 sets up a scheme to issue Australian Carbon Credit Units for declared eligible sequestration offset projects. There are a number of requirements that a project must satisfy before the project can be declared eligible as a sequestration project (or a carbon offset project), and be eligible to receive credits. The two main requirements are that the person carrying out the project:

  • has a legal right to carry out the project; and
  • holds the exclusive carbon sequestration right for the project area.

The legal right must be long-term (up to and beyond 100 years) and must be recognised as an interest in land under the relevant State law. As a result, amendments to the Land Title Act and Land Act have been introduced to essentially provide a mechanism for the registration of a 'Carbon Abatement Interest' on the Land Title Register. A Carbon Abatement Interest is defined in the amendments to the Land Title Act as an "interest in the land consisting of the exclusive right to the economic benefits associated with the carbon sequestration of the land." Carbon sequestration is defined in the Bill to mean "a living biomass, dead organic matter or soil" and includes the process by which the biomass, matter or soil removes and stores carbon dioxide from the atmosphere, or the use of the biomass, matter or soil to avoid, reduce or eliminate greenhouse gas emissions.

It will be essential to register a Carbon Abatement Interest before applying for Federal Government approval for a sequestration carbon offset project.

A Carbon Abatement Interest will run with the land, and will be registered as an 'interest' on the relevant parcel of land, similar in effect to an easement document.

Amendments to the Land Title Act 1994 and Land Act 1994

The Land Act and Land Title Act have been amended to provide for:

  • the creation of a carbon sequestration interest in land (which includes exclusive right to the benefit of carbon sequestration in a specific area); and
  • further dealings with carbon sequestration interests.

Under the amendments to the Land Title Act, a Carbon Abatement Interest will be created by registering the document creating the Interest in the Titles Office. The document will need to include:

  • a description identifying the lot the subject of the Interest;
  • the terms of the Interest being granted;
  • the period for which the Interest is granted; and
  • a sketch plan identifying the relevant part the lot (if the Carbon Abatement Interest relates to part of a lot).

Registration will only occur if:

  • the proposed grantor of the Interest is the registered owner of the lot;
  • the registrar is satisfied that the registered owner is the holder of the right to deal with the carbon abatement product for the lot;
  • all holders of registered interest in the land (ie the mortgagee), whose interest may be affected by the proposed Carbon Abatement Interest, consent to the grant of the Interest; and
  • there are no existing Carbon Abatement Interests registered for the part of the lot to which the proposed Interest relates.

The grantor and the grantee of a Carbon Abatement Interest may be the same person, making it possible for a land owner to grant a Carbon Abatement Interest to itself and then transfer that Interest to a different party at a later date.

Similar amendments to the Land Act have been made, with provisions requiring the relevant Minister to consent to the creation of a Carbon Abatement Interest in relation to the land governed by the Land Act. In deciding whether to consent to the registration of an Interest, the relevant Minister must consider whether the land will or is likely to be used or dealt with in a way that is inconsistent with the proposed Interest.

A Carbon Abatement Interest may not be registered for any specified national park that is on the Freehold Land Register.

The registration of a Carbon Abatement Interest alone in the Queensland Land Titles Office will not entitle a project to be approved as a carbon offset project, as certain criteria must first be met under the Carbon Farming Initiative before the project will be approved.

There are also provisions dealing with amendments to an Interest and the mechanisms involved in surrendering an Interest.

Things to consider when registering a Carbon Abatement Interest

Those who would like to register a Carbon Abatement Interest must ensure that any Interests are drafted carefully, as they may be in place for a long time. In particular, you will need to ensure that the details about the maintenance of the area are clear, and that the Interest specifies what will happen if the project cannot be approved as a carbon offset project, or is approved but is later removed from the Carbon Farming Initiative scheme as a result of circumstances outside the control of the grantor or grantee.

If you are planning to enter in to or register a Carbon Abatement Interest, or if you are intending to buy or sell a property that has a registered Interest on its title, we recommend that you obtain legal advice.

For more information about the registration of Carbon Abatement Interests, please contact HopgoodGanim.