‘Methodologically flawed’ (Part 3)—Avoided deforestation method does not prevent deforestation

Want to know a secret?

Under the Emissions Reduction Fund, the second largest method of purchased abatement is from rural landholders promising not to clear their land. The benefit to the climate here is through avoiding the emissions that will occur as the trees rot, releasing carbon dioxide into the atmosphere. Putting aside the question of ‘Hey, why don’t we just have effective land clearing controls in place and save the money for people who provide measurable benefit, rather than those who are simply promising not to cause harm to the environment?’, there is a big problem with this method:

Despite the landholder’s promise, despite signing a contract, despite the existence of the entire CFI Act and despite being paid, there is no legal reason why they can’t clear their land anyway.

Want to know another secret?

Even if they do clear their land, they not only can’t be punished, they will continue to be paid for the full amount they would have received if they had kept their promise.

There are three avoided deforestation methods in the ERF. The largest by far is the Avoided Deforestation method (version 1.1) which has 25.6 million tonnes of greenhouse gas abatement committed against it across 55 contracts and 56 projects. This volume of abatement makes it the second largest in the Emissions Reduction Fund and responsible for more than an eighth of the total credit in the ERF.

All of these projects are located in the Cobar region (North-Western New South Wales), near the Darling river, on mulga lands. The vegetation in question is, for the most part Native Acacia, the “mulga” in mulga lands.

In this piece, I will be referring mostly to this version of method simply because it is nearly 100 times larger than its nearest competitor among the Avoided Deforestation methods, but the same principles apply in the Queensland method (Avoided Clearing of Native Regrowth) and in the earlier version of the same method (Avoided Deforestation (version 1)).

In order to qualify for the Avoided Deforestation method, participants must have a land clearing permit application that at least reached draft stage before 2010. They must have not cleared the land (or at least not all of it), and be willing to surrender the right to do so in exchange for cash. In reality, for a variety of reasons, this rule means only projects in New South Wales qualify.

There are real problems here, including that some clearing permits were more than eight years old before the landholders registered for the ERF. Other clearing permits were finalised only months before promising not to clear under the ERF. In both instances, the obvious question is one of additionality. Was it really the funding from the ERF that stopped them and, if it wasn’t, is it really abatement? With the very old permits, landholders had ample time to clear their land and did not. For the very new, while a draft was submitted at least five years before the ERF started, was the lag between draft application and final permit approval the result of a change of mind? But that is not the issue here. This one is bigger. It stems from very poor drafting in the Act. It neuters the whole purpose of the abatement method.

As discussed in the previous post (How the Emissions Reduction Fund handles climate risk), there is a penalty regime in the CFI Act. This regime, for all its flaws, is what governs the ERF’s long term projects.

Under the Avoided Deforestation methods, landholders commit to protecting their land for 25 or 100 years. This period between registration and the end of the period of protection is called the permanence period.

There are two sections of the Act relevant to violations of permanence periods. They are:

These two provisions have the same structure. To make my point, I don’t even need to ask you to read them closely (though of course you can).

Let’s just look at paragraph (1)(a) of each:

(1) This section applies if:
(a) an eligible offsets project is a sequestration offsets project to remove carbon dioxide from the atmosphere; and […]

That seems relatively uncontroversial, right? The remainder of the section goes on to describe what triggers it, and the consequences. All elements are essential. If any conditions aren’t met, the provision doesn’t apply.

But we don’t need to look at the other elements to find the issue. You’ve already seen it. Though I’d understand if you missed it.

The issue lies in the definition of a ‘sequestration offsets project’? That’s in section 54 of the CFI Act:

For the purposes of this Act, a project is a sequestration offsets project if it is a project:
(a) to remove carbon dioxide from the atmosphere by sequestering carbon in one or more of the following:
(i) living biomass;
(ii) dead organic matter;
(iii) soil; or
(b) to remove carbon dioxide from the atmosphere by sequestering carbon in, and to avoid emissions of greenhouses gases from, one or more of the following:
(i) living biomass;
(ii) dead organic matter;
(iii) soil.

Flick back up to the introduction of this post if you like. Is an Avoided Deforestation project covered by section 54(a)? It’s right there in the name: Avoided Deforestation. Why do we want to avoid deforestation? Because if we deforest, as the wood rots, it releases carbon dioxide. That’s certainly not covered by section 54(a).

What about section 54(b)? Is avoided deforestation a method designed to do both? Yes. Absolutely.

The Avoided Deforestation method expressly allows landholders to gain extra credit, in the form of extra ACCUs, if they sequester extra greenhouse gases on their land at the same time as avoiding clearing their land. This would be done by encouraging more growth of the native vegetation on their land.

This is provided for in the Avoided Deforestation method:

Section 62: Step 2—Optional calculation of carbon stock enhancements
(1) Project carbon stock enhancements may be accounted for in accordance with this section.

A participant landholder ‘may’ include include sequestration in their plan, but this is expressly ‘optional’.

If they decide to not to, then neither of the relevant penalties apply. If their project is only a project to avoid emissions, because they chose not to do more work, then they are definitely not a project to sequester emissions (subsection 54(a)), and they are also definitely not a project to both sequester and avoid emissions (subsection 54(b).

That makes their project definitely not a sequestration offsets project. And if it is not a sequestration offsets project, then sections 90 and 91 definitely do not apply to them.

The definition in section 54 relates to the unique nature of the project and not the nature of the method, so if the participant landholder elects not to sequester, it isn’t sequestration.

And given sections 90 and 91 are the only provisions that can result in triggering penalties for the land being cleared, then these projects can definitely clear their land whenever they want without punishment.

You might not believe this, but it gets worse.

Did you notice the similarity in the language between section 54(a) and that in sub-section (1)(a) of sections 90 and 91?

Section 54:

For the purposes of this Act, a project is a sequestration offsets project if it is a project:

(a) to remove carbon dioxide from the atmosphere by sequestering carbon in one or more of the following: […]

Section 90 (and Section 91):(1) This section applies if:

(a) an eligible offsets project is a sequestration offsets project to remove carbon dioxide from the atmosphere; and […]

Because of this similarity of language, where the two turns of phrase are essentially identical, and the Act has made a point of providing a distinction between a project that only sequesters emissions and a project that both sequesters and avoids emissions, the ‘strict’ reading of subsection (1)(a) is that the penalty provision only applies to the projects captured by subsection 54(a) and not to those in subsection 54(b). ‘Strict’ in the lay sense, often implies unfairness, but in this context, that reading should be used because it is more fair. I’ll come back to that in a second.

My argument becomes more clear if you understand that there is a rule that Courts use when interpreting statutes that says, essentially, ‘words in statutes must be presumed to have meaning and legal effect’. There is a complicated Latin phrase for it, but I’ll skip it.

The Act could, in subsection (1)(a) have said: ‘This section applies if: (a) an eligible project is a sequestration offsets project; and …’. It didn’t though. It said more. It used the exact form of words, with a slight rearrangement, that it used to describe a sequestration only project. Those extra words were unnecessary and, while it’s impossible to say that when the Act was passed Parliament intended the penalties to only apply to projects that only sequester, they did in fact make that quite ambiguous.

That word I used above, ‘strict’, is not a great word for a lay audience. Maybe you think I’m being unfair by reading it this way. But for lawyers, reading things strictly when you are dealing with a legal punishment in an Act is necessary. The State has immense power to deprive us of our rights, even if those rights are to ACCUs that we probably didn’t earn. Where there is a difference between what the State meant to put into a law and what was in fact put in a law, the Court’s job is to limit the power of the State and protect the rights of citizens. According to this, it should on first principles make the legislated rule as small as possible. Whether it does this for this particular piece of legislation, we will only know once a case makes it to Court. It might allow for error in the circumstance where the participant landholder is both sequestering and avoiding emissions.

What it will not do, however, is make the definition bigger than any sensible reading of the Act. It will not be able to fix the obvious mistake where projects that are only avoiding emissions are squeezed uncomfortably into a definition of sequestration offsets project.

Okay, but do they still need to be paid?

In short, yes.

In the previous post in this series, I used the example of the Avoided Deforestation method to show how ACCU credit is calculated. It’s quite simple. Perhaps too simple.

Equation showing the manner of calculating abatement each year where the full abatement predicted to be created over 100 years (in tonnes of carbon dioxide equivalent gases) is divided by the number of years in the crediting period. The outcome of this equation is the number of carbon credits (ACCUs) distributed each year.

tCO2-eq: tonnes of abatement in carbon dioxide equivalent

All projects, regardless of their permanence period, have their number of ACCUs calculated against the abatement potential over 100 years. Those projects which elect for a 25 year permanence period receive a standard discount. There is also the 5% ‘risk of reversal buffer’ I mentioned in the previous post that, for simplicity, is not mentioned in the above equation.

While the participant landholder has to do surveys of their land as part of registering the project for the ERF, these calculations are not revisited. The method relies on the penalties available under sections 90 and 91 to handle any loss of carbon from adverse events (including deliberate adverse events).

Even if these are unavailable, which as I’ve shown they will be for at least some projects, there is no power that the regulator holds to reduce the number of ACCUs issued after the calculation has occurred.

The regulator must issue the ACCUs according to the original calculation. They do not have discretion here.

And while the method could be amended, projects stay on the version of the method that they register under unless the participant voluntarily changes to the new version. If the only amendment was to allow for the regulator to effectively punish people effectively, why would a participant change? To get them to switch to a new version, participants would need to be incentivised to do so. Maybe we could change the calculations to make them better for participants, but that would be buying their compliance with a promise already made.

Yes, you are right. It is perverse.

These are drafting errors, and absolutely innocent mistakes. But they are so frequent in the ERF and its methods that it is hard to see any potential for integrity between them all.

I plan to keep showing you them. Stay tuned.