6 questions you should always ask a carbon agent to find out if Carbon Trading is a good enterprise for you
The world of ‘Carbon Farming and Trading’ is now well established in Australia, and yet its sometimes hard to find information which will help you make an informed decision.
There are a number of companies who might approach you to enter into an agreement with them for an ERF (now also known as the Climate Solutions Fund – CSF) project, and the agreement will set out the terms and conditions under which they would like to do business with you. But, how do you know you are getting the best deal? What are the risks? What do you have to do?
1. Which ‘method’ should I use?
Each carbon farming project is governed by a ‘method’ (here’s the 5 most popular). The selected method stipulates ALL of the requirements you will be asked to meet. So, it’s important to know:
- What ‘method’ is my project going to be registered and conducted under?
- What are my legal requirements to undertake this method if I am successful getting an ERF contract?
- What is my ‘project activity’? This is important because it may affect the day to day running of your property e.g. stock management, ability to clear forest etc.
- What proportion of my property is ‘in’ the project? Make sure you know which paddocks/areas are ‘in’ the project and which are excluded and why.
- Are there clear indications of ‘how much’ carbon you might be able to claim, and the time frames?
If possible obtain a ‘guide to implementing’ the particular method – many guides are available on the CER site. These have good fundamental information. CFA also has copies of the ‘guides to implementing’ many of the methods. These give an excellent idea of the requirements.
2. How long will the project last?
These projects go over many years. This is beneficial on the one hand as you may have an assured income for up to 10 years under a ERF contract and more income earning potential for years after that. HOWEVER, there are requirements on what you may have to do. You need to know:
- Is my project over 25 years or 100? (in the case of sequestration)
- What are the obligations in a 100 year project?
- And the implications of a 25 year project?
3. What are my obligations?
Many companies work for a percentage of the Australian Carbon Credits (ACCUs) value. This has been very good for some farmers as the partner company (or ‘Carbon Agent’ as they have come to be known) may NOT ask for money up front to do all the carbon estimates; and will also handle all the reporting and auditing requirements. However, agreements differ from company to company, so you need to know:
- What is the recompense the partner company receives and what do I receive?
- What do I need to pay for?
- How long am I obliged under the contract to stay with the partner company?
- What other requirements are there?
- How is the ‘price of carbon’ established – with consultation with me? This is important to be able to do your own calculations on risk/return if you are bidding into the ERF auction.
4. What is the risk?
If your project gains a ERF contract, you can now choose a binding contract or an optional contract to deliver what was bid at auction. E.g. If you choose a binding contract and the bid was 2000 tonnes of CO2e per year for 10 years, THAT is what must be delivered. If for any reason there is an under-delivery in any year, the project proponent may be liable to provide ACCUs from somewhere else – perhaps the open market, for instance (however the shortfall may also be made up the year after). Therefore under a binding contract you want to know:
- How is this risk managed with my partner company?
- Who holds the risk of under-delivery?
For the T’s & C’s of an optional contract, please contact Louisa.
5. Do I need legal advice?
You should seek independent legal advice about any contract as you would for any other major decision.
6. Where can I access accounting advice?
There can be a significant payment from a ERF contract – especially in the first years. Your accountant needs to be ‘on board’ with the potential income and its implications. To avoid a large tax bill in any one year, it’s important to know:
- When will I first be paid?
- What will that amount be?
- How will the payments come after that? E.g. Yearly or less often?
- How long does the contract with the partner company last?
NOTE: CFA is a full service, regionally based Carbon Farming Company and Carbon Agent, holding an Australian Financial Services Licence. We have registered projects and contracts under the ERF. Please ask Louisa for answers to the above questions to get an informed quote.
While every effort has been made to have this information accurate and up to date using best industry knowledge, CFA accepts no responsibility for decisions made from the information. It is provided as general information only. Farmers and Landholders should get independent legal advice on all aspects of a Carbon Services or Landholder agreement, methods, and projects.
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