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Queensland Parliamentary Library
Carbon Commodities on Leasehold Land under the Natural Resources and Other Legislation Amendment Bill 2004 (Qld)
The issue of greenhouse gas reduction continues on the global agenda. Emissions trading, including the use of carbon credit, to regulate greenhouse gas emissions remains important for Australia, despite the Commonwealth Government’s decision not to ratify the Kyoto Protocol. Legal issues surrounding the ownership of carbon sequestration capabilities must be resolved for any trading scheme to emerge.
The Natural Resources and Other Legislation Amendment Bill 2004 (Qld) will allow leaseholders to deal with carbon sequestration as a commodity, bringing it into line with the regime for freehold land in Queensland.
Sarah Lim and Renee Giskes
Research Brief No 2004/03
Queensland Parliamentary Library Research Publications and Resources Section
Ms Karen Sampford, Director (07) 3406 7116 Ms Renee Giskes, Acting Senior Parliamentary Research Officer (07) 3406 7241
© Queensland Parliamentary Library, 2004
ISSN 1443-7902 ISBN 0 7345 2885 X APRIL 2004
Copyright protects this publication. Except for purposes permitted by the Copyright Act 1968, reproduction by whatever means is prohibited, other than by Members of the Queensland Parliament in the course of their official duties, without the prior written permission of the Clerk of the Parliament on behalf of the Parliament of Queensland.
Inquiries should be addressed to: Director, Research Publications & Resources Queensland Parliamentary Library Parliament House George Street, Brisbane QLD 4000 Ms Karen Sampford. (Tel: 07 3406 7116) Email: [email protected]
Information about Research Publications can be found on the Internet at: http://www.parliament.qld.gov.au/Parlib/Publications/publications.htm
CONTENTS
EXECUTIVE SUMMARY .......................................................................................
1 INTRODUCTION.............................................................................................1
2 THE KYOTO PROTOCOL.............................................................................2
2.1 OVERVIEW .....................................................................................................2
2.2 CARBON SEQUESTRATION CREDITS ................................................................3
2.3 CONSEQUENCES FOR QUEENSLAND AND OTHER STATES.................................5
3 LEGAL ISSUES ASSOCIATED WITH CARBON OWNERSHIP.............5
4 CARBON OWNERSHIP ON FREEHOLD LAND IN QUEENSLAND.....6
4.1 POSITION UNDER THE FORESTRY ACT 1959 (QLD)...........................................6
4.2 WHAT IS A PROFIT A PRENDRE?.......................................................................8
5 LEASEHOLD LAND IN QUEENSLAND......................................................8
6 NATURAL RESOURCES AND OTHER LEGISLATION AMENDMENT BILL 2004 (QLD)..............................................................................................9
6.1 DRAFT STATE RURAL LEASEHOLD LAND STRATEGY .......................................9
6.2 KEY PROVISIONS OF THE BILL.......................................................................10
6.2.1 Amendments to the Forestry Act 1959 (Qld) ......................................10
6.2.2 Amendments to the Land Act 1994 (Qld) ............................................11
7 POSITION IN OTHER JURISDICTIONS ..................................................12
7.1 JURISDICTIONS USING THE PROFIT A PRENDRE MECHANISM ..........................12
7.1.1 New South Wales.................................................................................12
7.1.2 South Australia ....................................................................................14
7.1.3 Tasmania ..............................................................................................15
7.2 JURISDICTIONS CREATING STATUTORY RIGHTS IN CARBON SEQUESTRATION16
7.2.1 Victoria ................................................................................................16
7.2.2 Western Australia ................................................................................ 18
APPENDIX A – MINISTERIAL MEDIA STATEMENTS .............................. 21
RECENT QPL RESEARCH PUBLICATIONS 2004........................................ 23
Natural Resources and Other Legislation Amendment Bill 2004 (Qld)
EXECUTIVE SUMMARY
The Natural Resources and Other Legislation Amendment Bill 2004 (the Bill) is, for the purposes of this Research Brief, in identical terms to the Natural Resources and Other Legislation Amendment Bill (No. 2) 2003 (Qld) that was introduced into the Queensland Legislative Assembly on 25 November 2003 but which lapsed with the dissolution of the Parliament on the calling of the election in January 2004. The Bill extends to leaseholders the same ability to enter into, and register, agreements regarding the ownership, use and economic benefits of natural resource products (including carbon commodities) as currently exists for freehold land (pages 1-2). The Kyoto Protocol foreshadows the development of an international emissions trade as a mechanism for reducing greenhouse gas emissions. The Protocol recognises ‘carbon sinks’ as a means of creating ‘credits’ in the system (pages 2-4). Although Australia is a signatory to the Protocol, the Commonwealth Government has made clear its intention not to ratify the Protocol into Australian law. It has also abandoned its work into developing a greenhouse gas trading scheme (page 3). Emissions trading schemes could still be established nationally or by individual States to reduce emissions, or among countries that do not take part in the Kyoto regime. For these reasons, credit from carbon sequestration remains an issue for Queensland and other jurisdictions (page 5). A legal difficulty arises with the recognition of ownership of carbon storage capabilities. An entity may wish to purchase a carbon credit without owning the land the sink is on. Under the common law, a landholder owns the land and all the resources on it, including trees, soil and, presumably, the carbon sequestration capabilities therein. Legislation is therefore required to clarify that ownership of the carbon can be held separately to ownership of the land and/or trees (pages 5-6). A mechanism, known as the profit a prendre, has been used in the common law for centuries and is the right to take something from another’s land (page 8). In 2001, the Queensland Legislative Assembly extended the concept of a profit a prendre to carbon sequestration capabilities on freehold land (pages 6-7). The Bill extends this recognition to certain leasehold land (pages 8-11). The profit a prendre mechanism is also used in New South Wales (pages 12-14), South Australia (pages 14-15) and Tasmania (pages 15-16) to clarify that carbon rights can exist separate to the ownership of land or trees. Victoria (pages16-18) and Western Australia (pages 18-19) create statutory rights to the ownership of carbon which is sequestered in trees.
Natural Resources and Other Legislation Amendment Bill 2004 (Qld) Page 1
1 INTRODUCTION
The Natural Resources and Other Legislation Amendment Bill 2004 (Qld) (the Bill) was introduced into the Queensland Legislative Assembly on 18 March 2004 by the Hon S Robertson MP, Minister for Natural Resources, Mines and Energy. For the purposes of this Research Brief, the Bill is in identical terms to the Natural Resources and Other Legislation Amendment Bill (No. 2) 2003 (Qld) that was introduced into the Legislative Assembly on 25 November 2003. The 2003 Bill lapsed with the dissolution of the Parliament on the calling of the election in January 2004.
The Bill amends the Land Act 1994 (Qld), Forestry Act 1959 (Qld) and Land Title Act 1994 (Qld)1 to “provide a mechanism, consistent with that which is available on freehold land, to recognise statutory rights to, and facilitate commercial dealings in, natural resource products (including carbon commodities, trees and vegetation) on leasehold land in Queensland”.2
The common law mechanism of the profit a prendre was introduced to achieve this purpose for freehold land under the Forestry and Land Title Amendment Act 2001 (Qld).3 The Bill extends to leaseholders the same ability to enter into, and register, agreements regarding the ownership, use and economic benefits of natural resource products. It allows for the separation, and registration on the lease and land title, of-
• tenure over the land; and
• contractual rights over natural resource products on the land.
1 This Research Brief considers only those amendments under the Bill which are relevant to the
issue of the ownership of carbon commodities on State leasehold land. It does not consider amendments to other Queensland legislation introduced by the Bill.
2 Natural Resources and Other Legislation Amendment Bill 2004 (Qld), Explanatory Notes, p 1.
3 The mechanism for freehold land exists under the Forestry Act 1959 (Qld), Part 6B (Natural Resource Products). Refer to Nicolee Dixon, Greenhouse Gases Emission Abatement and Carbon Credits – Australia’s Response and the Queensland Forestry and Land Title Amendment Bill, Research Brief 15/01, Queensland Parliamentary Library, June 2001, http://www.parliament.qld.gov.au/ConcordDocs/RBR/RBR1501ND.PDF for a discussion of the mechanism available to freehold land. This Research Brief also provides further background on the Kyoto Protocol, emissions trading and other processes put in place by the Commonwealth Government to reduce greenhouse gas emissions.
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In introducing the Bill, the Hon S Robertson MP said that “[a]n important benefit of this legislation is that it will prevent two separate carbon trading regimes from evolving – one for freehold and one for leasehold. It will simplify the process for lessees wishing to enter the emerging market for carbon”.4
A number of lessees have indicated a desire to move into the forestry sector, including establishing plantations. The Bill provides lessees with an opportunity to diversify, particularly where all or part of their holding is no longer suitable for traditional rural production. It is also anticipated that allowing lessees the ability to maximise their returns by planting trees will provide an incentive for the sustainable management of the land.5
2 THE KYOTO PROTOCOL
2.1 OVERVIEW
The Kyoto Protocol is an international instrument for the reduction of harmful greenhouse gas emissions.6 The Protocol was drawn up under the United Nations Framework Convention on Climate Change in 1997 and sets greenhouse gas targets for signatory countries based on their emission levels in 1990. The target for Australia is to achieve 108% of the level of emissions in 1990 by 2008. Each country has a different target, which depends largely on its economic circumstances. Australia’s target was set with consideration being given to “the energy intensive nature of [its] exports, the increasing population, the wide separation of its cities and significant changes to land use patterns that are still occurring”.7
4 Hon S Robertson MP, Minister for Natural Resources, Mines and Energy, Natural Resources
and Other Legislation Amendment Bill 2004 (Qld), Second Reading Speech, Queensland Parliamentary Debates, 18 March 2004, pp 73-74, at p 74.
5 Second Reading Speech, p 74; Explanatory Notes, p 2.
6 The full text of the Kyoto Protocol may be accessed at http://unfccc.int/resource/docs/convkp/kpeng.html.
7 Western Australia. Department of Premier and Cabinet. C Hogg, “State based carbon emissions trading mechanism issues and recommendations”, August 2002, p 3, downloaded 6 February 2004 from website at http://www.sustainability.dpc.wa.gov.au/docs/BGPapers/ClairHogg.pdf.
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To enter into force, the Protocol must be ratified by at least 55 of the countries which were responsible for at least 55% of the world’s carbon emissions in 1990.8
Although Australia is a signatory to the Protocol, the Commonwealth Government has decided that it will not ratify the Protocol into Australian law “because it is not in the best interests of the country to do so”9 and, in January 2004, it abandoned its work into developing a greenhouse gas trading scheme.10 However, the Government has affirmed its commitment to achieving reductions in greenhouse gas emissions.11
There are still many issues regarding the Kyoto Protocol which remain the subject of ongoing negotiations between the signatories to it.
2.2 CARBON SEQUESTRATION CREDITS
As plants grow, they remove carbon dioxide (one of the major greenhouse gases) from the atmosphere. The carbon dioxide then becomes part of the plant’s cells. In circumstances where more carbon dioxide is being removed from the atmosphere than is being released within an area of vegetation, the offset is known as a ‘carbon sink’. Larger, longer living plants such as trees are more effective carbon sinks than smaller, shorter living plants because greater amounts of carbon are sequestered per unit area, and for longer periods.12
One aspect of the Kyoto Protocol which has been the subject of extensive negotiation is the role that carbon sinks play in meeting emissions targets. Under the Protocol, certain carbon sinks can be used to meet commitments to emissions targets by acting as a ‘credit’ towards the emissions that are generated.13 Under
8 Article 25(1) of the Kyoto Protocol.
9 Australian Greenhouse Office, http://www.greenhouse.gov.au/international/kyoto/index.html.
10 Second Reading Speech, p 73.
11 See, for example, “Kyoto Protocol: how it would work”, Sydney Morning Herald, 12 January 2004. There are reports that the Commonwealth Government has abandoned an international greenhouse emissions trading scheme - “Dumping greenhouse scheme ‘scandalous’, says Carr”, Sydney Morning Herald, 12 January 2004.
12 New South Wales. State Forests of New South Wales, Generating carbon benefits from public and privately owned forests, http://www.forest.nsw.gov.au/publication/forest_facts/carbon/carbon_fs.pdf. Geo-formations, such as reefs, are also carbon sinks.
13 Article 3.3 of the Kyoto Protocol.
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this process, a financial value may attach to the carbon sinks as credits are traded to meet these targets. In some cases, it might be more economically viable for an entity to purchase carbon credits than to change its production processes to reduce emissions.
Article 6 of the Kyoto Protocol foreshadows the establishment of an international trade in carbon credits. The spirit of the Protocol, however, is that carbon credits are not an alternative to reducing emissions, but may instead be used to assist in meeting those targets.
Many scientific and practical matters regarding carbon sequestration remain the subject of debate. In light of these uncertainties, it is important to note that-
• the amount of carbon that is sequestered depends on the type and age of the vegetation;
• carbon that is stored can also be released back into the atmosphere in varying degrees through events such as fire, disease or harvesting;
• under the Kyoto Protocol, only certain types of forests (those established after 1990 on land which had been cleared prior to 1990) qualify as sinks;14
• no national carbon trading scheme has been established in Australia. However, some individual companies are using carbon sinks to reach emission targets under State government regimes, and domestic and international investors see potential for carbon credit trading in the future and have already invested in carbon sinks;15 and
• the value of carbon credits is not yet known; peculation ranges from $10 to $700 per tonne of carbon that is sequestered.16
14 See article 3.3 of the Kyoto Protocol.
15 See, for example, the discussion at Part 7.1.1 of this Research Brief regarding the New South Wales Greenhouse Gas Abatement Scheme and agreements entered into by State Forests of New South Wales and overseas investors.
16 See, for example, ANU Forestry, Carbon credit markets, Market Report 12, June 2000, p 2, downloaded 12 February 2004 from website at http://sres.anu.edu.au/associated/marketreport/report12.pdf.
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2.3 CONSEQUENCES FOR QUEENSLAND AND OTHER STATES
Although the Commonwealth Government has decided not to ratify the Kyoto Protocol, the issue of emissions reductions and carbon credit remains relevant because-
• a change of government may lead to a change in policy;
• even in the absence of ratification, domestic emissions/credit trading schemes may be established, as has occurred in New South Wales;17
• overseas investors may look to Australia as a source of carbon sinks to offset emissions in another country. These sinks would not qualify for credit towards that other country’s targets under the Kyoto Protocol but could be valuable in any domestic scheme set up in that other country, or a ‘secondary market’ could emerge among countries that do not ratify the Kyoto Protocol but which still attempt to reduce emissions;18 and
• some entities are taking early, voluntary action to reduce their emissions.19
3 LEGAL ISSUES ASSOCIATED WITH CARBON OWNERSHIP
A legal problem may arise concerning ownership of, or interests in, the carbon storage capabilities of trees or vegetation on land. The Australian Greenhouse Office expressed the problem as follows-
With regard to legal provisions for recognition of separate ownership of carbon rights, there is an issue relating to the legal separation of three sets of possible primary interests: • The ownership of the land in which the trees are grown; • The ownership of the forest which gives rise to the carbon sequestration; and • The ownership of the rights to the sequestered carbon in the trees.20
17 It has been reported that New South Wales and Victoria are considering a bilateral ‘Kyoto-
style’ abatement and trading scheme for greenhouse gas emissions. Susan Brown, ‘Greenhouse gas deal considered by states’, Age, 7 March 2004.
18 As discussed by Environmental Resources Management Australia in Feasibility Study into the Value of Carbon Sinks for Defence: Report, August 2003, p 4.
19 M Wilder, “The Kyoto Protocol and early action”, [2001] UNSWLJ 39, downloaded 13 February 2004 from website at http://www.austlii.edu.au/au/journals/UNSWLJ/2001/39.html.
20 Australian Greenhouse Office, National Emissions Trading: Crediting the Carbon, Discussion Paper 3, 1999, p 35.
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Under the common law, the owner of land has rights not only to the surface area of the land but also the space above the surface and the soil below.21 These rights are not, however, unlimited and the courts have recognised that there is a need to be practical in the assertion of the rights.22 Statute also generally reserves the ownership of minerals and petroleum below the surface to the Crown.23 A land owner will, however, usually own the trees and other resources on the land, including the carbon storage capabilities of those resources.
In the absence of specific legislation, there is legal uncertainty as to whether carbon storage capabilities of trees can be owned as a commodity on land separate to the ownership of the land itself, or ownership of trees on the land. Legislation has been introduced throughout Australia to clarify this situation. In some jurisdictions, the concept of a profit a prendre has been adopted as the mechanism for establishing rights in carbon. In other jurisdictions, specific rights are created in relation to the ownership of carbon sequestration.24 This legislation, however, does not, of itself, create a mechanism for carbon credit trade. Instead, it establishes a legal framework that provides the security of ownership needed for the effective operation of any carbon credit trade which may emerge.
4 CARBON OWNERSHIP ON FREEHOLD LAND IN QUEENSLAND
4.1 POSITION UNDER THE FORESTRY ACT 1959 (QLD)
The Forestry and Land Title Amendment Act 2001 (Qld) clarified the legal ownership and property rights of landowners and other parties in carbon which is stored or absorbed by trees and other vegetation on freehold land in Queensland.25
21 C MacDonald, L McCrimmon and A Wallace, Real Property Law in Queensland, LBC
Information Services, Sydney, 1998, p 89.
22 See, for example, Bernstein v Skyviews and General Ltd [1978] QB 479.
23 For example, the Land Act 1994 (Qld), ss 21 and 22.
24 Refer to Part 7 of this Research Brief for a discussion of the position in other Australian jurisdictions.
25 Forestry and Land Title Amendment Bill 2001 (Qld), Explanatory Notes, p 1.
Natural Resources and Other Legislation Amendment Bill 2004 (Qld) Page 7
Under the Forestry Act 1959 (Qld), the registered owner of freehold land may enter into an agreement with another person about a ‘natural resource product’ on the land (s 61J(1)).
‘Natural resource product’ includes-
• all parts of a tree or vegetation, whether alive or dead, including parts below the ground;
• carbon stored in a tree or vegetation;
• carbon sequestration26 by a tree or vegetation (s 61J(7)).
The agreement may do one or more of the following-
• vest all or part of the natural resource product in the other person;27
• grant the other person the right to enter the land to establish, maintain or harvest the natural resource product and/or carry out works or activities for the natural resource product;
• grant the other person the right to deal with the natural resource product (s 61J(3)).
The other person’s rights to the natural resource product under the agreement are a profit a prendre for the purposes of the Land Title Act 1994 (Qld) (s 61J(5)) and capable of registration on the land title pertaining to the property. Registration of the agreement in this manner protects the parties to the agreement against subsequent dealings with the land which are contrary to their interest, and alerts any potential purchasers of the property as to the existence of the agreement.
The Queensland government has stated that- Investors in plantations can use this system to register their interest in trees established on someone else’s land on the land title. Land holders can use this system to sell interests in trees without having to sell the land the trees are growing on, and without having to fell the trees. This makes it possible to trade in immature plantations.28
26 ‘Carbon sequestration’, for a tree or vegetation, includes the process by which the tree or
vegetation absorbs carbon dioxide from the atmosphere (s 61J(7)).
27 The vesting of a natural resource product under the agreement does not create an interest in the land (s 61J(4)).
28 Queensland. Forest Industries, Forestry in Queensland: Queensland Tree Tenure System, p 2, downloaded on 11 February 2004 from website at http://www.forests.qld.gov.au/forind/farmprivateforestry/qldtreetenure.htm.
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4.2 WHAT IS A PROFIT A PRENDRE?
A profit a prendre has been defined as- …a right to take something from another’s land. The thing taken must be part of the land, or the wild fauna on it, and that thing must be capable of ownership. A profit includes the right to go on to the other person’s land for the purpose of taking the profit.29
A profit a prendre differs from a mere contractual right to enter land as part of a contract for the sale of items which are produce of the land but sold as personal property.30 The distinction is sometimes difficult, but the court has held that it lies in the intention of the parties. For example, in Corporate Affairs Commission v ASC Timber Pty Ltd, Powell J said-
…is it the intention of the parties that the trees may be, or are to be, felled and removed within a reasonably short time – in which case the arrangement is one of sale – or is it intended that the trees shall be retained for a considerable period of time while they grow to maturity – in which case the arrangement is one involving a grant of a profit a prendre.31
The formalities for creating a profit a prendre are set out in the Land Title Act 1994 (Qld).
5 LEASEHOLD LAND IN QUEENSLAND
Leasehold land in Queensland is created under the Land Act 1994 (Qld). Nearly 73% of Queensland is held under State leases, which may take the following forms-
• large pastoral leases (predominantly in northern and western Queensland);
• more intensively farmed grazing leases (extending from coastal regions to central Queensland);
• leases for commercial or industrial purposes;
• leases for large tourism complexes over Queensland islands or prime sites;
• leases that allow particular types of developments (e.g. large housing estates that are later sold as freehold lots);
29 MacDonald, McCrimmon and Wallace, p 640.
30 P Butt, Land Law, 3rd edition, LBC Information Services, Sydney, 1996, p 458.
31 (1989) 18 NSWLR 577, at p 590.
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• leases of land below the high water mark; and
• leases of reserves (e.g. to a sporting club or community group).32
A lease must be used only for the purpose for which it was issued and may be issued for a term (between 1 and 100 years), in perpetuity (forever) or as a freeholding lease (where the issue of freehold title has been approved but the lessee is paying off the purchase price over time). Rent is payable annually on leases and the lessee must comply with various conditions attaching to the lease.
‘State rural leasehold land’,33 as at October 2002, consisted of approximately-34
• 1,500 pastoral holdings covering 86 million hectares;
• 2,800 perpetual leases covering 21 million hectares; and
• 2,700 special leases and term leases covering 1.9 million hectares.
6 NATURAL RESOURCES AND OTHER LEGISLATION AMENDMENT BILL 2004 (QLD)
6.1 DRAFT STATE RURAL LEASEHOLD LAND STRATEGY
At the time the Forestry and Land Title Bill 2001 (Qld) was introduced providing the profit a prendre mechanism for freehold land, the Hon S Robertson MP foreshadowed that consideration was being given to increasing the range of activities that lessees could undertake on leasehold land, to allow the lessees to diversify into various activities to improve their economic position, the sustainable use of their properties and achieve positive environmental outcomes.35
32 Information regarding leasehold land in Queensland may be accessed at
http://www.nrm.qld.gov.au/land/state/leases.html.
33 This refers to land for which leases may be issued for the purpose of grazing and/or agriculture.
34 Queensland. Department of Natural Resources and Mines, Draft State Rural Leasehold Strategy, March 2003, p 2, http://www.nrm.qld.gov.au/land/state/pdf/draft_leashold_land_mar03.pdf. These figures exclude forestry leases and reserves.
35 Hon S Robertson MP, Minister for Natural Resources and Mines, Forestry and Land Title Amendment Bill 2001 (Qld), Second Reading Speech, Queensland Parliamentary Debates, 19 June 2001, pp 1536-1537, at p 1537.
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In March 2003, the Department of Natural Resources and Mines released the Draft State Rural Leasehold Land Strategy for the sustainable management and use of rural leasehold land. Included in the Draft Strategy was a discussion of the proposal to extend the profit a prendre mechanism available on freehold land to leasehold land.36
The Draft Strategy states that, in addition to amendments to the Land Act 1994 (Qld), supporting guidelines will be developed to support practical implementation of forest product management agreements.37
6.2 KEY PROVISIONS OF THE BILL
6.2.1 Amendments to the Forestry Act 1959 (Qld)
Clause 5 of the Bill extends the profit a prendre mechanism currently available for freehold land to leasehold land, but only in circumstances where the lease allows the land to be used for agricultural or timber plantation purposes (new s 61J(7)).
For leasehold land, a lessee may enter into an agreement only if the natural resource product is owned by the lessee as an ‘improvement’, within the meaning of the Land Act 1994 (Qld).
‘Improvement’ is defined in the Land Act 1994 (Qld)38 to include any cultivation, garden, orchard or plantation.
Agreements may therefore “include, but are not restricted to, carbon, timber, flowers, seeds, oils, foliage and bush tucker, provided such vegetation is planted by the lessee. … All native vegetation on leasehold land other than that planted by the
36 Available at http://www.nrm.qld.gov.au/land/state/pdf/draft_leashold_land_mar03.pdf. See
section 5.5. The Draft Strategy followed the Department of Natural Resources and Mines, Managing State Rural Leasehold Land: A Discussion Paper, December 2001, http://www.nrm.qld.gov.au/land/state/pdf/staterural_discussion_paper.pdf. In January 2001, the Queensland government also released a discussion paper Carbon Credits from Forestry: Questions and Answers for Rural Landholders, http://www.nrm.qld.gov.au/vegetation/pdf/carbon_credits_brochure.pdf.
37 Page 30 of the Draft Strategy. Draft practice guidelines for diversification on rural leasehold land have been released by the Department of Natural Resources and Mines, http://www.nrm.qld.gov.au/land/state/pdf/draft_diversification.pdf.
38 Land Act 1994 (Qld), Schedule 6.
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lessee as a plantation, and the rights associated with it, will remain protected and the property of the State”.39
6.2.2 Amendments to the Land Act 1994 (Qld)
The Bill amends the Land Act 1994 (Qld) in the following key respects-
• a new section 274A(12) is inserted so that trees planted in compliance with a compliance notice arising from illegal clearing are not included in the definition of ‘improvement’ to which an agreement may relate (clause 31);
• a new Chapter 6, Part 4, Division 8B ‘Profits a prendre’ is inserted allowing for the registration of a profit a prendre that relates to a natural resource on leasehold land that is owned by the lessee as an improvement40 (clause 41);
• a new section 373G requires the Minister’s written approval for a lease to be made the subject of a profit a prendre by registering the document creating the profit a prendre over the lease;
• a new section 373H provides that a profit a prendre that is registered over leasehold land and which exists over two different tenures must also be registered in the appropriate register;
• a new section 373I(3) provides that the period for which a profit a prendre may be enjoyed must not be longer than the term of the lease;
• a new section 373P provides that if a lease subject to a profit a prendre is surrendered, other than absolutely, the profit a prendre continues. If the lease is surrendered absolutely, the profit a prendre is extinguished; and
• a new section 373Q allows a profit a prendre over a lease to be sold, mortgaged, given to another person or pass by will or intestacy to a beneficiary.
39 Hon S Robertson MP, Minister for Natural Resources, Mines and Energy, ‘Bill extends carbon
trading opportunities to leasehold farmers’, Media Statement, 18 March 2004. A copy of this Media Statement is included as Appendix A to this Research Brief.
40 A new section 373F repeats that the leasehold land must be held under a lease that allows the land to be used for agricultural or timber plantation purposes. It also states that ‘natural resource’ means a tree or vegetation other than a tree planted to comply with a compliance notice.
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7 POSITION IN OTHER JURISDICTIONS
Other Australian jurisdictions have differing mechanisms for the recognition of the ownership of carbon rights, and vary in their application of these mechanisms to leasehold land. The regimes in New South Wales, South Australia and Tasmania are similar to the concept of the profit a prendre used in Queensland, whereas Victoria and Western Australia have created statutory rights in relation to carbon sequestration.
Neither the Australian Capital Territory nor the Northern Territory has legislation concerning carbon sequestration rights.41
7.1 JURISDICTIONS USING THE PROFIT A PRENDRE MECHANISM
7.1.1 New South Wales
New South Wales was the first jurisdiction in Australia to address the ownership of carbon rights. It has also made some advances in establishing a carbon credits trading scheme.42
The Conveyancing Act 1919 (NSW) recognises-
• a ‘carbon sequestration right’ as a right conferred on a person by agreement or otherwise to the legal, commercial or other benefit (whether present or future) of carbon sequestration by any existing or future tree or forest on the land after 1990;
• a ‘forestry right’ as an interest in land where the person having the benefit of the interest is entitled to enter the land to establish and/or maintain and harvest a crop of trees, or a carbon sequestration right, or both; and
• a ‘forestry covenant’ as a covenant that is incidental to a forestry right and includes any such covenant that imposes obligations requiring-
• the provision of access to, or the maintenance of, trees or forests on land that is the subject of any carbon sequestration; or
41 It has been foreshadowed in the Northern Territory that legislation on this issue will be
introduced in 2004.
42 Information relating to the position in New South Wales may be obtained from the State Forests of New South Wales website, http://www.forest.nsw.gov.au/. The website also outlines the various carbon trading milestones in New South Wales.
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• the ownership of any tree or trees on land that is the subject of a forestry right to be vested in the person who owns the forestry right,
or imposes any term or condition with respect to the performance of or failure to perform any such obligation (s 87A).
Forestry rights are deemed to be profits a prendre (s 88AB(1)).
It appears that forestry rights can apply to freehold or leasehold land (s 88EA) and take effect upon registration.
Under the Energy Services Corporations Act 1995 (NSW), electricity generators (s 6(3A)) and energy distributors (s 9(3A)) may acquire, hold, sell or otherwise deal with or trade in carbon sequestration rights under the Conveyancing Act 1919 (NSW).
Under the Forestry Act 1916 (NSW), the Forestry Commission may-
• acquire, hold, sell or otherwise deal with or trade in carbon sequestration rights;
• do any of the following for the benefit of investors in carbon sequestration rights-
• procure the use of land on behalf of investors under a forestry right or by purchase, lease or otherwise;
• establish and maintain timber plantations on behalf of investors or other persons;
• harvest and market timber grown on behalf of investors or other persons;
• provide services in respect of the verification of the quantity of carbon sequestration by any tree or forest (s 33C).
In 1999-2000, the Sydney Futures Exchange and State Forests of New South Wales entered into negotiations to develop the world’s first exchange traded market for carbon sequestration credits. Sydney Futures Exchange withdrew from the process in June 2000.
State Forests of New South Wales continues to be active in the area of carbon sequestration investment.43 Two major investments have taken place. First, in 2000, the Tokyo Electric Power Company Inc. entered into an agreement with the New South Wales government to establish 40,000 hectares of new forest over the next decade. Secondly, in September 2003, STMicroelectronics, one of the
43 The State Forests of New South Wales website contains a timeline outlining the major carbon
trading milestones, http://www.forest.nsw.gov.au/env_services/carbon/trading/milestones/default.asp.
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world’s largest semiconductor companies, signed a contract with State Forests of New South Wales to establish and manage up to for 12,000 hectares of new plantations in northern New South Wales.44
Further, the New South Wales Greenhouse Gas Abatement Scheme45 commenced on 1 January 2003, and remains in force until 2012. The Scheme imposes mandatory greenhouse gas benchmarks on all New South Wales electricity retailers and certain other parties, including those who elect to manage their own benchmark, to abate the emission of greenhouse gases from the consumption of electricity in New South Wales. Under the Scheme, a State greenhouse gas benchmark is set (expressed in tonnes of carbon dioxide equivalent per capita) to decrease progressively between 2003 and 2012. Carbon sequestration is an allowed activity for offsetting emissions. To sell carbon credits, a seller must be accredited and address issues such as long term estate planning, risk management and other compliance matters.
7.1.2 South Australia
The Forest Property Act 2000 (SA) permits the holders of leasehold and freehold land (s 3) to enter into a ‘forest property agreement’ with another person (‘forest property owner’) for whose benefit ‘forest vegetation’46 is, or is to be, grown on the land.
A forest property agreement may-
• confer on the forest property owner rights to enter the land to plant, maintain and harvest forest vegetation;
• require the owner of the land and/or the forest property owner to take specified action for cultivation, maintenance and care of the forest vegetation;
• deal with the duty of care to be exercised by each party to the other; and
• deal with any other incidental matter (s 5(3)).
44 See http://www.forest.nsw.gov.au/env_services/carbon/investments/stmicro/default.asp.
45 The Scheme was established under the Electricity Supply Amendment (Greenhouse Gas Emission Reduction) Act 2002 (NSW).
46 ‘Forest vegetation’ is defined to mean trees and other forms of forest vegetation including roots or other parts of the trees or other forest and leaves, branches or other parts or products of a tree or other forest vegetation, but does not include edible fruit (s 3).
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A forest property agreement confers the following interests on the forest property owner-
• ownership of the forest vegetation to which it relates;
• a right (exclusive of the right of the owner of the land) to the commercial exploitation of the carbon absorption capacity of the relevant forest vegetation; and
• an interest in the nature of a profit a prendre in the land on which the forest vegetation is being, or is to be, grown (s 7).
A forest property agreement may be registered (s 6).
The carbon aspects of the legislation received minimal attention during the Hansard debate on its introduction.
7.1.3 Tasmania
In introducing amendments to the Forestry Rights Registration Act 1990 (Tas) in 200247 to clarify the status of carbon rights, the Hon P Lennon MLA stated-
…the concept of a carbon sequestration right does not fit with the meaning of a profit a prendre, as it is impossible to enter and take carbon sequestered from trees on another’s land, separately from taking the timber on the land.
Therefore, the strong view that has been put forward, … is that unless carbon rights are legislated for specifically, there is a risk that these rights will not be recognised under a traditional property analysis under common law.48
‘Carbon sequestration right’ is defined to mean a right conferred on a person (by agreement or otherwise) to the legal, commercial or other benefit (whether present or future) of carbon sequestration by any existing or future tree or forest on the land (s 3). ‘Forestry right’ is defined to include any (or any combination of the following) interests in the land granted by the owner of the land-
• ownership of trees;
• a carbon sequestration right;
47 The amendments were introduced by the Forestry Rights Registration Amendment Act 2002
(Tas).
48 The Hon P Lennon MLA, Forestry Rights Registration Amendment Bill 2002 (Tas), Second Reading Speech, Legislative Assembly, Tasmanian Parliamentary Debates, Tuesday 23 April 2002, Part 2, pp 43-103, http://www.hansard.parliament.tas.gov.au/ISYSquery/IRL5875.tmp/1/doc.
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• a right to establish, maintain or harvest, or maintain and harvest, trees (s 3).
Forestry rights are deemed to be profits a prendre (s 5(1)), may be registered (s 5(2)) and may exist on leasehold or freehold land (s 3). The parties are governed by the forestry covenant which gives effect to the arrangement.
7.2 JURISDICTIONS CREATING STATUTORY RIGHTS IN CARBON SEQUESTRATION
7.2.1 Victoria
The Forestry Rights Act 1996 (Vic) was amended in 200149 to recognise the ownership of carbon rights. The Act does not apply to Crown land (s 4).
An owner of land may enter into an agreement (‘forest property agreement’) with a person (‘forest property owner’) about ‘forest property’, which includes-
• granting the forest property owner a right to plant, maintain and harvest forest property on that land, or maintain and harvest forest property planted on that land or derived from forest property on that land;
• granting the forest property owner a ‘carbon sequestration right’ in relation to the forest property;
• vesting the ownership of the forest property in the forest property owner (s 5(1)).
A ‘carbon sequestration right’ means a right to commercially exploit carbon sequestered by trees (s 3). ‘Forest property’ means all parts of trees, shrubs, bushes, seedlings, saplings and reshoots (whether alive or dead and including any parts below the ground), the products of trees (whether or not those products have become separated from those trees prior to being harvested) and carbon sequestered by trees (s 3).
The forest property owner may apply for registration of the forest property agreement (s 8).
The forest property owner may then enter into a ‘carbon rights agreement’ with another person to grant the forest property owner’s carbon sequestration right to that person (s 12). Information about a carbon rights agreement must be provided to the Head of the Department of Natural Resources and Environment (s 13).
49 The amending Act was the Forestry Rights (Amendment) Act 2001 (Vic).
Natural Resources and Other Legislation Amendment Bill 2004 (Qld) Page 17
The Victorian regime therefore does not invoke the concept of the profit a prendre. It is also different from other regimes in the sense that an owner of land cannot grant a carbon sequestration right independent of a forest property agreement. Only the forest property owner can enter into a carbon rights agreement. This issue was raised in the Parliamentary debate on the amending Act. One member quoted from a submission regarding the amendments-
It is strenuously contended that a carbon rights agreement should be capable of being entered into by landowners as well as by forest property owners. There will be many cases where trees are being grown by a landowner on the landowner’s own property. There seems to be no reason why in these circumstances the landowner cannot either grant carbon rights directly or alternatively enter into a forest property agreement whereby the landowner is both the landowner and forest property owner.
You have to doubt the wisdom of the bill if the owner of the land who has planted the trees cannot enter into a property rights agreement in respect of the carbon sequestered by those trees but in fact had to enter into an agreement with himself under the forest property agreement. This seems to be a totally unnecessary requirement of a property owner who will want to use the legislation to enjoy the opportunity of trading in carbon credits.50
Responding to this issue, the Hon S Garbutt MP, then Minister for Environment and Conservation, stated-
A question was asked about why the land-holder will not be allowed to enter directly into an agreement on carbon rights. The answer is that that would establish competing rights over the same trees. The most effective way of avoiding such a conflict of interest between the management of trees for timber and for carbon is to make the rights derive from the forest property agreement. Otherwise there would be two classes of carbon right – one derived from the forest property right and the other from the independent right. That would lead to a difficult and confusing situation.51
Despite this explanation, it seems that landholders are at a disadvantage. The value of carbon sequestration rights will be considered when a forest property agreement is being negotiated by the landholder and the potential forest property owner. However, the landholder could be disadvantaged by not having the capacity to confer a carbon sequestration right directly on another person.
50 The Hon A Plowman MP, Forestry Rights (Amendment) Bill 2001 (Vic), Legislative
Assembly, Victorian Parliamentary Debates, 22 March 2001, p 443.
51 The Hon S Garbutt MP, Minister for Environment and Conservation Victoria, Forestry Rights (Amendment) Bill 2001 (Vic), Legislative Assembly, Victorian Parliamentary Debates, 22 March 2001, p 459.
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The legislation also states that any forest property right granted under a forest property agreement in force prior to the amendments is deemed to include a carbon sequestration right (s 15).
7.2.2 Western Australia
The Carbon Rights Act 2003 (WA)52 recognises ‘carbon rights’ where a ‘carbon right form’ is registered in respect of freehold or Crown land (s 5). When a carbon right form is registered, the carbon right that is the subject of the form is created and becomes a separate interest in the land in respect f which the form is registered (s 6(1)).
The proprietor of a carbon right has the legal and commercial benefits and risks arising from changes to the atmosphere that are caused by carbon sequestration and carbon release occurring in or on land in respect of which the carbon right is registered (s 8(1)). The proprietor may also, in relation to any matter that affects or might affect carbon sequestration or carbon release occurring in relation to the land in respect of which the carbon right is registered, enter into a covenant with another person having an interest in the land to create rights, obligations or restrictions in relation to the land (s 10). The carbon covenant may be registered (s 11).
In introducing the legislation, the Hon F Logan MLA said- The carbon right relates solely to proprietorship of the benefits of sequestration. It makes it clear who owns those benefits and, if the owner is someone other than the owner of the land, it makes the position secure. The registered carbon covenant spells out the details of how much carbon is to be sequestered, over what timeframe, in what form, how it is to be measured and so on. However, the Bill does not bind the Government to force the parties to deliver on their undertakings in the covenant. Legislation for the covenant is again about proprietorship of the land, the carbon and the benefits from sequestration. It is up to the signatories to use civil remedies to ensure delivery of the covenant undertakings, just as in any other agreement.
…Registration of a carbon right and carbon covenant by a party who is not the landowner will remove the risk that a court might find, in the event of a dispute between the parties, that despite that person’s investment in the right or covenant the right to the carbon sequestration benefits belongs to the land-holder. Without the Bill, such a finding could be possible as a result of the old common law rule that
52 The Carbon Rights Act 2003 (WA) is not yet proclaimed into force. This legislation was
developed as part of a package of legislation, including the Tree Plantation Agreements Act 2003 (WA) and the Acts Amendments (Carbon Rights and Tree Plantation Agreements) Act 2003 (WA), to reduce the commercial and legal risks associated with the establishment of tree plantations and other environmental plantings to allow for potential trading in carbon benefits.
Natural Resources and Other Legislation Amendment Bill 2004 (Qld) Page 19
trees growing on land, and the carbon contained in the trees, are part of that land, and therefore belong to the owner of the land.53
Unlike the regimes in Queensland, New South Wales, South Australia and Tasmania, Western Australia does not use the profit a prendre mechanism to create ownership of carbon sequestration rights. Instead, it creates new statutory rights in carbon sequestration.
53 The Hon F Logan MLA, Carbon Rights Bill 2002 (WA), Second Reading Speech, Legislative
Assembly, Western Australia Parliamentary Debates, Wednesday, 22 May 2002, p 10961/1.
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Natural Resources and Other Legislation Amendment Bill 2004 (Qld) Page 21
© State of Queensland (Department of the Premier and Cabinet) 1997, this version copyright 2002
APPENDIX A – MINISTERIAL MEDIA STATEMENTS
Hon. Stephen Robertson MP, Minister for Natural Resources, Mines & Energy 18 March 2004 Bill Extends Carbon Trading Opportunities To Leasehold Farmers Farmers on leasehold land will be able to reap future financial benefits from trees they plant under new legislation introduced into State Parliament today by Natural Resources Minister Stephen Robertson.
The Natural Resources and Other Legislation Amendment Bill 2004 proposes amendments to the Land Act 1994, the Forestry Act 1959 and the Land Title Act 1994 to extend the instrument of "profit a prendre" (currently only available in Queensland on freehold land) to leasehold land.
Profit a prendre is a common law mechanism that enables the tenure over the land and contractual rights over natural resource products to be separated, and registered on the lease and land title.
"Giving leaseholders the ability to maximise their financial returns from planting trees will help farmers improve their long-term economic viability and provide an important incentive to manage the land sustainably," Mr Robertson said.
"There are also clear environmental benefits from the planting and retention of vegetation such as improved water quality and salinity control," he said.
Mr Robertson said the State Government was proceeding with its legislation despite the Howard Government's decision in January to scrap the Australian Greenhouse Office's work on developing a national carbon trading scheme.
"The Beattie Government hopes that common sense and vision will prevail and, when it does, legal recognition of carbon commodities will provide important certainty to landholders wishing to be part of any future carbon trading scheme," he said.
Mr Robertson said the Bill clarifies the legal ownership rights of leaseholders to the natural resource products on their properties, including the carbon absorbed or stored by trees and other vegetation on their land.
"It also provides a mechanism for leaseholders to enter into commercial dealings with other persons for the natural resource products of plantations, such as timber and carbon stored in or sequestered by trees, they grow on their property as improvements," he said.
Allowable natural resource products would include all parts of a planted tree or vegetation, whether alive or dead, including parts below the ground; carbon stored in a tree or vegetation; and carbon sequestration by a tree or vegetation.
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© State of Queensland (Department of the Premier and Cabinet) 1997, this version copyright 2002
"Subjects of profit agreements may include, but are not restricted to, carbon, timber, flowers, seeds, oils, foliage and bush tucker, provided such vegetation is planted by the lessee," Mr Robertson said.
Commercial ownership or interest in the natural resource product would be separate from the leaseholder's tenure over the land under the profit a prendre mechanism.
"This will provide greater security for the lessee and interested parties by allowing the profit to be registered as an encumbrance on the lease," he said.
Mr Robertson said there would be some important exclusions to the vegetation allowable under the proposed legislation.
"All native vegetation on leasehold land other than that planted by the lessee as a plantation, and the rights associated with it, will remain protected and the property of the State.
"Trees planted to remediate illegal clearing activity on a property will also be excluded and will not be allowed to be treated as a commercial commodity," he said.
Mr Robertson first introduced the bill into State Parliament late last year but the parliamentary term expired before the legislation could be debated.
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RECENT PARLIAMENTARY LIBRARY RESEARCH PUBLICATIONS 2004 RESEARCH BRIEFS RBR2004/01 An Ageless Australian Workforce Mar 2004 RBR2004/02 The Dangerous Prisoners (Sexual Offenders) Act 2003 (Qld): the High Court decision in Kable
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RBR2004/03 Carbon Commodities on Leasehold Land under the Natural Resources and Other Legislation Amendment Bill 2004 (Qld)
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