Australian Carbon Farming Initiative (CFI)

Last updated: 8 March, 2016

Australia’s Carbon Farming Initiative (CFI) was created to provide rewards to domestic farmers and landholders for storing carbon or reducing GHG emissions on the land. The CFI is one of several land sector measures in the Australian Government's plan to transition to a Clean Energy Future.


The Australian Parliament passed enabling legislation for the CFI in 2011. Under the CFI, farmers and landholders may earn carbon credits from activities that store carbon in soil and plants (sequestration projects) or reduce emissions (avoidance projects). Carbon credits earned under the CFI are called Australian Carbon Credit Units (ACCUs); if the abatement from the project counts towards Australia’s national target under the Kyoto Protocol, credits are known as Kyoto ACCUs and can be used for domestic compliance purposes. Where such credits do not count towards Australia’s Kyoto commitment, they can be sold in the voluntary carbon market. As of November 1 2013, 26 land-use projects had been approved under the CFI with 64,618 ACCUs issued, 38,734 of which are Kyoto compliant. This includes 13 afforestation/reforestation projects, 1 Avoided Deforestation project, with the remainder of the land use projects associated with dry season savannah burning. Under the entire CFI, which includes other sectors, 91 projects have been approved and more than 2.7 million ACCUs issued.

Under Australia's current Carbon Pricing Mechanism, around 500 companies have a mandatory obligation to reduce or offset their emissions with eligible carbon credits (including Kyoto ACCUs). There are limits to how many Kyoto ACCUs can be used during the fixed price period (2012 – 2015) and no limit during the flexible price period (from July 2015). The Carbon Pricing Mechanism may, however, be repealed or modified in the future. Federal elections were held in September 2013 that led to a change in government. The new conservative government has prepared draft legislation to repeal much of the current federal climate change legislation. The CFI is expected to continue under replacement climate change legislation, though the details are currently unclear. For international REDD+ to be recognised in Australia, the government would need to pass additional regulations. 

Design Features

Deforestation, forest management, afforestation and reforestation.   

Project level.

The CFI legislation defines a baseline for offsets project to be calculated on the assumption that the project were not carried out. The Guidelines for Submitting Methodologies also states that the “key purpose of setting the baseline is to ensure that any credited abatement for the activity is genuinely additional”. Depending on the proposed activity, baselines can be historic, projected, or standardized baselines. Reference level methodologies must conform to Australia’s National Greenhouse and Energy Reporting Act 2007 and National Greenhouse and Energy Reporting Regulations 2008 and must be supported by peer reviewed science.

Unless specified otherwise in regulations, a crediting period is 20 years for native forest protection projects, 15 years for reforestation projects and 7 years for all other offset projects. Projects can be approved for a subsequent crediting period.

Additionality is a requirement of all offset schemes in Australia, i.e. carbon credits cannot be used for business-as-usual activities. The CFI includes a list of eligible activities (the "positive list") that are not common practice and are deemed to be additional.  In addition, the CFI requires a regulatory additionality test, to ensure the project is not required by law and must also use an approved methodology that establishes a baseline that represents what is likely to happen in the absence of the CFI project.

The Guidelines for Submitting Methodologies (see External Links) defines leakage as “the increase of greenhouse gas emissions from an activity or area outside the control of the project proponent, occurring as a result of undertaking the project activity”. The CFI requires the estimation of, and accounting for (e.g. a discount rate), leakage in cases where there is a decrease in production. Market leakage is set at the regulatory level and deducted by the Clean Energy Regulator for Native Forest Protection Projects. Activity shifting leakage is dealt with within the design of methodologies and must be accepted prior to the Domestic Offset Integrity Committee endorsement of a methodology. The CFI does not, however, require accounting for leakage to other countries.

CFI sequestration projects are subject to permanence obligations (emissions avoidance activities are not) that seek to sequester carbon for 100 years. A risk buffer contribution of 5% is applied to all sequestration projects – i.e. 95 ACCUs are issued for every 100 tonnes of carbon sequestered. A project proponent is required to notify the Clean Energy Regulator of a reversal of carbon sequestration, if natural and human-caused disturbance results in reversal on at least 5% of the project area(s) or 50 hectares, whichever area is smaller. Proponents do not have to return credits in the event of a natural disturbance but will not receive further credits until the pre-disturbance carbon stocks are restored. Sequestration projects must be monitored throughout the 100 year permanence obligation period.

The CFI legislation contains a ‘negative list’ to identify ineligible activities and was designed to ensure such projects were not considered additional and to address residual risks not addressed through the existing regulation. The negative list identifies types of projects that are likely to cause adverse impacts to one or more of a list of topics, which includes employment, the local community, and land access for agricultural production. The enabling legislation also has specific provisions relating to indigenous lands.

The CFI legislation contains a ‘negative list’ to identify ineligible activities. The negative list includes environmental issues that could be associated with certain activities. These activities are ineligible because they pose threats to water tables, use invasive species, cause wetland draining or native forest clearing or use materials obtained as a result of clearing or harvesting of native forests. According to the CFI Handbook, biodiversity co-benefits will be promoted under the CFI and projects meeting certain criteria can advertise this feature of their project and seek a premium price for their carbon credits.  In addition, the government will support projects delivering biodiversity benefits through a Biodiversity Fund.

Projects must adhere to regional natural resource management plans (a mechanism for local communities to have broad input on land use) and comply with water, planning and environmental laws. Projects must be consistent with applicable laws and regional natural resource management plans.  There are no explicit provisions for stakeholder participation, except for public commenting on methodologies and changes to the negative and positive list which requires public consultation.

Monitoring and reporting of emissions reductions or carbon sequestration is defined by the applicable methodology. CFI project proponents can choose when to submit a project report and receive carbon credits, although project reports must be submitted at least once every five years and not within 12 months of a previous report. A report must also be submitted at the end of the crediting period. Sequestration projects must be monitored for reversals throughout the 100 year permanence obligation period.

The Australian National Registry of Emissions Units is an electronic system that tracks the issuance, trade and retirement of emissions units under the carbon price mechanism, the CFI and the Kyoto Protocol. 

The process for methodology and project development and registration are separated. According to the Guidelines for Submitting Methodologies, methodologies may be submitted by private individuals, industry associations or government agencies and are evaluated by the Domestic Offsets Integrity Committee for their conformance with the CFI’s integrity criteria. Draft methodologies are published and subject to public comment and final approval by the Minister for Climate Change and Energy Efficiency.  For project development and registration, the CFI Handbook sets out the process for undertaking CFI projects as follows. Project developers first become a Recognized Offsets Entity (ROE of the CFI) and create a registry account. This step establishes a developer’s identity, and involves passing a “fit and proper” person test. This is followed by the ROE submitting the necessary documentation and project approval by the Clean Energy Regulator, project implementation, project reporting and separate auditing by a registered auditor, review of reports by the Clean Energy Regulator, credit issuance, and closure or transfer of the project. The CFI relies on the audit framework established under the National Greenhouse and Energy Reporting Act 2007. External audit reports verify the information supplied by the proponent.