Carbon rights

November, 2001

Rebecca Bailey and Adam Rayner, Melbourne

ISSN 1329-8062

This Agriculture Note provides information on carbon

rights in farm forestry and makes reference to legislation
and agreements that govern the ownership of these
rights.

What are carbon rights?

Carbon rights allow the ownership of carbon that is
absorbed from the atmosphere and stored by a forest
(carbon sequestration). The Victorian Government has
legislated carbon rights in the Forestry Rights Act 1996
amendment of May 2001, allowing them to be owned and
traded independently from forest property rights. This was
to encourage investment in planting forests for reducing
greenhouse gases.
Forestry rights and carbon rights under the Forestry Rights
Act 1996 are specific to private land and may add to the
value of existing (since 1990) or newly established
plantations. Carbon emitters may seek to purchase these
rights from the forest owners, providing an extra source of
income.

How does the amendment affect existing

forest property holders?
A carbon sequestration right is included with all forest
property rights that were granted under a forest property
agreement (Forestry Rights (Amendment) Act 2001),
unless conditions in that agreement state otherwise. In
other words, existing forest property owners would own
the carbon rights attached to their forest property.

The value of carbon rights international

agreements and emissions trading.
It is well understood that the increasing concentration of
carbon (in its various forms) in the atmosphere has serious
implications for climate change. An international treaty
developed by the United Nations was developed to combat
this. The Kyoto Protocol imposes limits for carbon
emissions for participating countries, but it is not yet
legally binding. The Protocol recognises that because trees
absorb and store carbon, they act as a sink for
atmospheric carbon and that creating sinks is an acceptable
way for countries to offset greenhouse gas emissions.

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As a result of the emissions trading provisions of the

Kyoto Protocol, companies could begin trading carbon as a
commodity, following international agreement. The
method of allocating these permits has not yet been agreed
upon.
Some companies are currently speculating on the
introduction of emissions trading by investing in
greenhouse plantations.
There are some unresolved issues associated with
emissions trading, including the most appropriate carbon
accounting method. This will affect the value of carbon.

Carbon sinks
The current definitions state that a carbon sink can be
composed of any tree species that has the potential to grow
over two metres in height and have a canopy cover of at
least 20%. Therefore, this excludes shrubs and grasses. A
plantation must also be greater than one hectare in size and
must be established on land that was cleared prior to 1990.
The plantation itself must have been established in or after
1990.
Establishment of plantations on cleared land will result in a
higher average carbon density over time, irrespective of
thinning and harvesting regimes. This is as long as the land
is maintained under a plantation system in perpetuity.

Carbon sink species

Species that have a higher carbon sequestration rate will be
more effective as a carbon sink and therefore will
potentially attract more credit.
Eucalypts and pines are both good at sequestering carbon,
but vary in their growth rates. In the short term, say a
rotation of 10 12 years; eucalypts are better as they grow
faster. Pines are better over the long-term, say a period of
25 years, as they grow more consistently and therefore, are
more efficient at sequestering carbon over this time.
Environmental plantings (eg. windbreaks), that are to
remain permanently in the landscape, can qualify as carbon
sinks.

State of Victoria, Department of Natural Resources and Environment 2001

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Carbon rights

What happens if the plantation is

destroyed?
Until there is an international agreement on carbon
accounting there are no real repercussions in terms of
carbon. However, if the plantation is destroyed by a
natural disaster including fire, the carbon will be lost to the
atmosphere and be counted as an emission. The carbon
rights owner would be liable for any costs or penalties
associated with this emission.
At present, there is not set industry value for carbon, so it
is not possible to insure the carbon component.

Harvesting the trees

If the plantation is harvested and not returned to trees then
the owner of the carbon rights would be liable for the net
carbon emissions, as the carbon stored in the trees is
deemed to be released back into the atmosphere.

What is involved in a carbon rights

agreement?
A carbon rights agreement allows transfer of ownership of
the carbon sequestered by the trees to a third party. Parties
to a carbon agreement should take legal advice on how
their respective rights and obligations should be defined in
order to protect their interests properly. The minimum
requirements are set out in the Forestry Rights
(Amendment) Act 2001. Anyone entering into a carbon
agreement needs to ensure that the owner of the trees
currently holds forest property rights. A forest property
agreement must exist in order to have a carbon rights
agreement.
A carbon rights agreement must be in writing and
must specify:
the parties to the agreement
the land, including area, to which the agreement applies
the rights and duties of the parties to the agreement
the date on or circumstances under which the forest
agreement terminates

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Registration
Only forest property agreements can be registered on the
title to the land, however, it does not form an interest in the
land. Carbon rights are a part of a Forestry Rights
agreement and therefore do not appear separately on the
land title.
The following details must be sent to NRE:
notification of any carbon rights agreement
the land to which the agreement applies
the area of land to which that agreement applies
Details on any carbon rights agreement should be sent
within 28 days to:
Private Forestry
PO Box 500
East Melbourne VIC 3002
There is a proforma on the NRE private forestry website
(available soon) that can be printed off, completed and
posted to NRE.
Are there other changes introduced by the
legislation?
There is a legislative requirement to notify the Department
of Natural Resources and Environment (NRE) that parties
have entered into a carbon rights agreement.
The holder of a registered encumbrance ie. a mortgagee,
must be notified when a forest property agreement is being
established.

Further information
NRE Customer Service Centre
Ph. 136 186
Private Forestry Website:
www.nre.vic.gov.au/forestry/private
Australian Greenhouse Office:
www.greenhouse.gov.au
.

This publication may be of assistance to you but the State of Victoria and its officers do not guarantee that the publication is without flaw of any
kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may
arise from you relying on any information in this publication.

State of Victoria, Department of Natural Resources and Environment 2001

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