The carbon price has been anything but taxing for environment lawyers, who have seen a flood of work since its introduction last year. Andrew Jennings reports.

Last October, a few kilometres from the town of Young in southeast NSW, a piggery farm became the first in Australia to turn its manure into carbon credits.

Just last week, two more nearby piggery projects followed suit, granted approval by Australia’s Clean Energy Regulator under the same Carbon Farming Initiative (CFI), an appendage of the Carbon Pricing Mechanism (CPM). 

These farms have spent hundreds of thousands of dollars on biogas generators that capture methane from the manure, turn it into electricity and export it to the national grid. 

It will turn the farmer’s monthly power bills from an expensive headache into a juicy credit, with the added bonus of being able to claim more carbon credits for the greenhouse gas emissions they avoid by capturing and burning the methane.

The farms, which earn about $15 a tonne for each carbon credit, are the first farms to benefit from the Government’s CFI program, which is aimed at cutting carbon emissions from agriculture in Australia. 

Since its introduction last year, the Government has approved 27 projects under the CFI, but that figure is predicted to rise rapidly in the next couple of years. 

Other projects operating under the initiative involve the capture and flaring of landfill methane gas at sites, the reduction of methane from piggeries, savanna burning and permanent native tree plantings.

The success story of the NSW piggeries and these other projects provides early evidence that, although still in its infancy, the CFI is working. 

It is setting out what farmers, foresters and landholders need to do to generate carbon credits, while establishing an independent regulator to verify carbon credit claims.

It’s an interesting example of government action to tackle climate change and create new business opportunities in the low-pollution economy of the future.

With the number of clients seeking advice in this growth area increasing, environment lawyers are seeing their workload follow a similar line. 

“It’s one of the big areas we’re working on right now,” says Elisa de Wit, head of Norton Rose Australia’s climate change practice. “We’ve been advising across all aspects of the scheme.”

What carbon farming does is allow clients to earn credits for particular types of emission reduction activity, which can then be sold on, particularly to the overseas markets, generating revenue while reducing carbon pollution.

“We’re seeing arrangements where international clients are looking to purchase these CFI credits, so they can be used for compliance purposes under the CPM,” says de Wit. 

Baker & McKenzie played its part in the process of shaping the CFI and says it’s beginning to reap the benefits of the initiative with a greater volume of work advising around it. 

“We’ve had the benefit of working closely with the Government on the development of the legislation, both the original carbon pollution reduction scheme and the CFI,” says Ilona Millar, a senior associate in the environmental markets team at Bakers.

“I think because we’ve been involved in stakeholder consultation with the Government, stress-testing the legislation, it has been part of our job to know and understand the large volume of legislation that has emerged,” she adds. 

Emissions wane

A new report from carbon analytics firm RepuTex shows Australia’s greenhouse gas emissions are expected to slow during 2013. 

The research points to emissions growing by just 0.4 per cent on 2012 levels, following a plunge in carbon emissions from the electricity sector during the first six months of the carbon tax.

Coupled with much greater use of renewable energy and cutbacks in consumption, it indicates the Government’s CPM policies are working and are likely to play a key role in reducing Australia’s carbon footprint.

Law firms are being required to respond to the double impact of both the carbon pricing and structural shifts in the Australian economy, particularly in the resources sector, which are steadily shifting the country’s emissions’ profile.

Since its introduction last July, global firms like Bakers and Norton Rose have been kept busy with various streams of work flowing from the CPM.

“To some extent, most of the lead-up work has already been undertaken, in terms of identifying whether an entity is captured under the carbon price, what they have to do to get ready, the mechanics of dealing with the regulator, and how they deal with the implications of being covered by a carbon price,” says de Wit. 

For both Bakers and Norton Rose, there’s plenty of work related to carbon cost pass-through, which includes contractual arrangements, both existing and new.

“We’re advising a lot of the large liable entities about how to manage their compliance with the new law,” says Millar. “In particular, managing relationships with joint-venture partners to share liability, managing carbon pass-through with supply contracts and looking at relationship issues associated with contractors on site.”

Bakers’ environmental markets team advises about whether there’s a need or any commercial benefit for a client in entering into liability transfer agreements, while it also looks at the strategic issues around managing liability at least cost, she adds.

Carbon price floored

Lawyers can expect more cross-border work in 2013 following the Government’s scrapping of the $15 minimum price on carbon last year.

The Government ditched the floor price, which was intended to give potential investors in clean energy certainty that the carbon price would not fall below $15 between 2015 and 2018. 

It was also announced that Australian businesses could purchase European Union Emission Allowance Units now and bank them when a flexible market price is introduced in 2015.

De Wit said the move is likely to generate work for lawyers as their clients take advantage of the cheaper unit price in Europe, which has the largest emissions-trading scheme in the world.

“Liable entities can now go out into the market and put in place purchasing strategies around international units, particularly the European allowances, and essentially do some form of hedging,” she says.

“Come 2015, [businesses] can use the cheaper units they’ve secured to meet their future liabilities.”

De Wit believes Australian companies really need to have a mind to what is happening in Europe “because that will set the price ultimately for the Australian carbon unit”.

Millar admits that a lot of Bakers’ international clients are interested in how they can participate in the Australian market, in particular the use of international credits for compliance in the Australian scheme, and believes the floor price was a key barrier in the development of trading markets.

“We have a lot of clients who participate in the European market with access to units they may want to sell into the Australian market … it’s already started, we’ve already been doing advisory work on that, and it’s certainly an area where there is going to be more work coming through,” says Millar.

Abbott’s pursuit

With a Federal Election looming in September, and given Liberal leader Tony Abbott’s “pledge in blood” to repeal the carbon tax, the future of the CPM in its current guise is far from certain.

Despite Abbott refusing to back down on his pledge to abolish carbon pricing legislation if the Coalition is elected to govern this year, Prime Minister Julia Gillard says Australia has now moved on from the debate.

“It has been a fast and furious debate but it’s done,” she told ABC Radio last month, before adding: “If the current Opposition was ever to end up as the Government, then they’d have a little fiddle and a name change and that would be the end of it.”

De Wit and Millar believe that Abbot is unlikely to budge on his stance, which they say would require a double dissolution to repeal the tax if it did come to pass. 

In the meantime, whatever the election result later this year, both say that the current legislation is unlikely to change anytime soon. 

“The legislation is in place for now and needs to be complied with … that’s going to be the case for possibly a couple more years,” says Millar. 

“By that stage companies might be quite comfortable with it and understand their obligations better under law, so regulatory changes at that point could be equally disruptive to business.”