Chapter 3
Environmental and Natural Resource Management Guidelines
Introduction
3.1
Eligibility for the carbon sink forest tax deduction requires adherence
to a set of environmental and natural resource management guidelines. Subsection
40-1010(3) of the Income Tax Assessment Act 1997 (ITAA) requires the
Minister for Climate Change to make guidelines about environmental and natural
resource management in relation to the planting of carbon sink forests. The
Environmental and Natural Resource Management Guidelines in relation to the
establishment of trees for the purposes of carbon sequestration (the
Guidelines) were introduced on 2 July 2008 and were tabled in the Parliament on
26 August 2008. A copy of the Guidelines is provided at Appendix 4 to this
report.
3.2
The committee was told that the purpose of the Guidelines is to
reinforce that carbon sink forests are to be established in a manner that is
consistent with existing good practice environmental and natural resource
management frameworks and regulations. The committee was also told that the Guidelines
do not apply any new regulatory arrangement by any level of government and have
been developed to avoid negative environmental outcomes, and provide realistic
compliance and administration costs for government and taxpayers.[1]
3.3
The Guidelines set out three areas for achieving climate change and
natural resource management outcomes and provide examples for how each of these
outcomes can be met. The Department of Climate Change (DCC) states that the
guidelines align with relevant established good practice environmental and
natural resource management.[2]
3.4
Guideline 1 aims to ensure that carbon sink forests are established
using regionally applicable best practices approaches for achieving multiple
land and water benefits. The committee notes that the expectation underlying
this guideline is that carbon sink forests should be established in ways that
enhance, or limit significant negative impacts on, water availability and
salinity mitigation.
3.5
Guideline 2 aims to ensure that carbon sink forest activities are
consistent with regional natural resource management plans and that potential
cumulative environmental impacts are assessed at a catchment scale. Guideline 3
aims to ensure compliance with Commonwealth, state and territory legislation,
and local and regional regulations.[3]
Flexible nature of the guidelines
3.6
The committee received a number of submissions which commented on the
manner in which the Guidelines have been drafted. A number of submissions
expressed concern that the Guidelines provided only examples and guidance and
do not employ more prescriptive language.[4]
Some submitters consider that the requirements in the Guidelines should be
mandatory and preferably set out in the primary legislation.[5]
3.7
Other submitters expressed concern that the Guidelines are not
sufficiently comprehensive. For example, Greening Australia expressed concern
that the Guidelines do not provide specific direction on a range of
environmental impacts including water quality, restoration and protection of
carbon stocks, impacts on habitat, permanence or perverse outcomes associated
with inappropriate plantings.[6]
The Green Institute expressed concern about the adequacy of environmental
planning requirements in the Guidelines, noting that there is no specific
mention of the Environment Protection and Biodiversity Conservation Act 1999
in the Guidelines. Similarly, Greenpeace Australia Pacific considers that the
guidelines should include conditions to safeguard the social, cultural and
environmental integrity of areas proposed for Carbon Sink Forest establishment.[7]
3.8
The committee notes that the Guidelines are drafted in particularly
generic and simple terms. The committee heard that the Guidelines have
deliberately been drafted in this way to take account of future legislative and
regulatory changes. Mr Ian Carruthers, First Assistant Secretary, Adaptation
and Land Management Division, DCC, told the committee that if there were a
change in environmental and natural resource guidelines brought in by the Commonwealth
or state governments then these Guidelines would automatically adopt it.[8]
Mr Carruthers told the committee:
There is added focus and pressure through this legislation to
declare that all the applicable public policy at all levels of government and
all the industry codes and whatever are complied with in making a tax
deductibility provision. If governments, through public policy, choose to
strengthen or change requirements to do with conservation or other matters over
time, then these guidelines have built into them the flexibility to require
that the standards of the day are met in making an application for
establishment costs.[9]
3.9
The committee heard that the intent of the legislation is to achieve an
integrated outcome in terms of climate change objectives, natural resource
management objectives and environmental objectives.
Reliance on state and territory regulatory structures
3.10
The committee notes there is also some concern that relying on
regionally applicable best practice approaches and State and Territory
regulation may not be effective. For example, Greening Australia expressed
concern that the Guidelines rely on standards prescribed under, what it
describes as, variable and often ambiguous regional natural resource management
plans. The Australian Network of Environmental Defender's Offices (ANEDO)
perceives problems with the current state regulation of plantations in NSW and
is concerned that such problems are exacerbated by poor monitoring and
enforcement of legislation by relevant government authorities. ANEDO would
prefer that a comprehensive national framework is established to ensure that
carbon sinks fulfil their intended purposes and do not cause ancillary
environmental harm.[10]
3.11
The committee also notes that the various legislative instruments relied
upon in the Guidelines are different in each state and territory. For example,
Mr Andrew Grant, CO2 Group Limited, explained that his company needs to comply
with a range of environmental regulatory requirements from state to state.
part of our site assessment and due diligence in planning
application requires securing all of the appropriate approvals before the sink
is established. New South Wales has a discrete piece of legislation called the Plantation
and Reafforestation Act, and it stipulates all the environmental approval
assessments and the regulatory approvals that are critical. There is a
government department that administers that, so every planting on every
property has to go through that approval. In Victoria, South Australia and Western
Australia it will vary, but it is a variation on a common theme. In the case
of New South Wales, the landholder has to undertake that application.[11]
3.12
The committee notes that there may be some benefit in companies seeking
to invest in carbon sink forests across states if there were a greater degree
of regulatory consistency between jurisdictions.[12]
However, the committee notes that the Guidelines have been drafted so as to
accommodate such variations.
3.13
The committee was also cautioned against seeking to make the guidelines
more specific. Mr Andrew Grant, CO2, told the committee that he did not think
it would be possible to improve the guidelines given the degree of variation
between legislation and regulations in each State and territory. In Mr Grant's
opinion the inclusion of greater detail in the guidelines may render them
unworkable.[13]
3.14
The committee notes that there is some support for the current reliance
on state and territory legislation.[14]
In particular the committee notes the endorsement of the Western Australian
Departments of Environment and Conservation and Water.[15]
Management of water resource impacts
3.15
The committee was particularly concerned to understand how the impact of
carbon sink forests on water resources would be managed under the Guidelines. In
particular, the committee examined how the issue of water interception by
carbon sink forests would be dealt with under the Guidelines and the
implications of the National Water Initiative (NWI) for carbon sink forests.
3.16
The committee notes that under the NWI governments have committed to:
- prepare water plans with provision for the environment;
- deal with overallocated or stressed water systems;
- introduce registers of water rights and standards for water
accounting;
- expand the trade in water;
- improve pricing for water storage and delivery; and
- meet and manage urban water demands.
3.17
Under the NWI each state and territory government is required to prepare
a NWI implementation plan. These plans, which are accredited by the National
Water Commission (NWC), include actions and timelines for implementation of key
actions under the NWI. Nine implementation plans have been accredited by the NWC
to date.[16]
3.18
Mr Russell James, Water Policy Branch, Department of the Environment,
Water, Heritage and the Arts told the committee that the legislation is
compliant with the NWI.[17]
Mr James also clarified that that while the NWI does not specifically deal with
the implications of plantation forests, including plantations for the purpose
of carbon sinks, it commits states and territories to having in place, by no
later than 2011, arrangements to ensure that such water intercepting activities
are considered in the water planning process. In cases where such activities
are expected to intercept significant volumes of water, the NWI ensures that
they are managed appropriately. Mr James explained to the committee that:
The basic approach of the National Water Initiative is that
commercial water use should be limited so as to ensure environmental objectives
can be met and that the allocation of water for commercial use should be
through the market. While much water use is regulated in the form of water
access entitlements, the NWI recognises that a number of water-using
activities, such as farm dams, bores and plantation forests, have potentially
significant water use. If this is not taken into account in the water planning
process, there is a risk that the environment will get less water than intended
and that the water access entitlement system will be eroded.[18]
3.19
The committee heard that if comprehensive water planning arrangements
are in place, proposals for carbon sink forests would need to be assessed
within the context of these arrangements. In systems that are overallocated,
fully allocated or approaching full allocation, the NWI indicates that
proposals above a certain threshold size should be required to obtain a water
access entitlement and that a suitable monitoring regime is put in place.[19]
3.20
The committee notes that most states are actively addressing the
development of water sharing plans. Under the NWI this work is to be completed
by 2011. However, the committee notes that the Council of Australian
Governments (COAG) Working Group on Climate Change and Water is currently
preparing advice on a forward work program for water reform. One of the issues
to be addressed as part of this forward work program is the acceleration of the
NWI commitments on interception in recognition of the potentially significant
impact of growth-intercepting activities. The Working Group is expected to
report to COAG in October 2008.[20]
Mr James explained to the committee
Regarding concern about intercepting activities broadly, carbon
sink forests are only one possible form of those activities. For example, in
the Murray-Darling Basin there are estimates that in the next 10 years
something like an additional 1,500 gigalitres of water might be taken out of
the system by growth in activities like farm dams or plantations. There is
nothing specific about carbon sink forests in that estimate. In a sense, that
is why COAG has asked us to look at this issue more closely. There is already a
commitment in the NWI to ramp up the regulation of these activities by 2011,
and COAG has asked us to make that happen even faster.[21]
3.21
In its Report to COAG in February 2008, the NWC noted that significant
progress has been made across a broad range of areas of water reform. The NWC
reports that almost all states and territories have made good progress in
developing water access entitlement and planning frameworks as prescribed by
the NWI, particularly in high priority water systems. The report notes that
almost all states have made statutory provision for environmental and public
benefit outcomes within water plans to protect water sources and their
dependent ecosystems.[22]
3.22
The NWC provided the committee with a summary of the processes and
practices for water planning in each state and territory and an updated report
on the current status of water planning for each water system, including both
surface water catchment and groundwater systems. The committee notes that water
plans have been commenced in relation to most water systems, but that a
significant amount of work remains to be completed in most states.[23]
3.23
The committee also notes that all water plans have a statutory review
period. While this review period varies significantly from state to state,
ranging from 5 years to 15 years, the committee considers that this provision
for review is important in ensuring that each water plan is responsive to
changes within the water system to which it applies. Such changes will include
climatic changes as well as changes in the availability of information and
knowledge in relation to water usage, environmental water needs and the impact
of adaptive management practices.
3.24
In evidence to the committee, the NWC clarified that it has previously observed
a need for more concerted action by the states and territories on interception
and has expressed some concerns in relation to the slow rate of rollout of
completed plans across Australia. The NWC has also expressed concern in
relation to the lack of a shared national definition of sustainable levels of
extraction. However, the NWC does not consider that the provisions of this
legislation on their own will lead to large-scale land use change and
large-scale interception of water.[24]
3.25
Mr Matthews explained to the committee that the basis for this view is
that within each state the development of water plans has been subject to a prioritisation
process. He told the committee that the water plans across Australia have been
sequenced by the state governments according to those catchments where the
water systems are under the greatest pressure. Mr Matthews said
... for a long time now the most stressed areas—water systems—have
had intensive planning activity across them. That gives me some confidence
that, if there are water systems that are approaching full allocation or are
overallocated, they are under notice now. Where the systems are not approaching
overallocation, and given what I have said about our expectation that this will
not be an additional major demand on water, I am confident that the sequencing
and the timing can be accommodated.[25]
3.26
While the committee notes that the Guidelines appear to be compliant
with the NWI, it also notes the improvements to the Guidelines suggested by the
Department of Water WA (DOW). While DOW agrees with the basic principles which
underly each guideline, it suggests that the Guidelines should also include a
requirement to avoid the establishment of carbon sink forests in areas of shallow
groundwater where there is a potential for acid sulphate soil generation.[26]
DOW goes on to suggest that 'catchment' should be replaced by 'water system'
throughout the Guidelines to account for both surface water and groundwater
systems.[27]
DOW also suggests that it would be beneficial for the legislation
underpinning Carbon Sink Forests to include a guideline that ‘other legislation
pertinent to tree plantations for the purpose of carbon sequestration must take
into consideration water interception activities.[28]
3.27
The committee notes from the status report of water plans prepared by
the NWC that most states and territories are considering the interrelationship
between ground water and surface water, including overland flow, in the
development of water plans. Water sharing plans are also being developed
specifically for groundwater systems in most states.[29]
3.28
The committee explored the suggestion that the Guidelines could be
amended to limit tax deductions to carbon sink forests in catchments where
there is a signed off water plan and catchment management plan. Mr Matthews told
the committee that because the NWI has prioritised the development of plans in
fully allocated systems or those approaching full allocation, such an amendment
to the Guidelines could have a perverse outcome.
I think that could run the risk of having a perverse
outcome—that is, it might direct these forests to the most overallocated systems
because the most overallocated systems are where the planning has been. The
least overallocated systems often have not yet finished their planning. I
suggest to the committee that you have a think about making that condition,
because it might have a perverse outcome.[30]
Land clearance
3.29
The committee received a range of evidence expressing concern that these
provisions could lead to the clearance of remnant vegetation. The committee
notes that all mainland jurisdictions have some form of control on the large
scale removal of native vegetation.[31]However,
the committee recognises that as with other legislative structures there is
some variation between land clearance requirements between the various
jurisdictions.
3.30
The committee was disappointed that DCC appeared unable to allay
concerns that a lack of enforceable legislation in some jurisdictions may
result in clearance of remnant native vegetation. In particular, the committee
sought clarification of the status of land clearance legislation in the Northern
Territory and Tasmania. Mr Paul Ryan told the committee
I do not think we are able to comment specifically on state
legislation. Our understanding is that there is clearing legislation in place
in all jurisdictions.[32]
Compliance with the Guidelines
3.31
Under Sub-section 40-1010(h) of the ITAA the owner of the trees must
give a notice to the Commissioner of Taxation providing all information
necessary to determine whether all of the conditions in subsection 40-1010(2)
are met. One of these conditions is that the establishment of the trees meets
the requirements of the Guidelines. In addition to this requirement, Subsection
40-1010(6) requires the Secretary of DCC to establish whether there are
reasonable grounds for believing that the environmental and natural resource
requirements set out in the Guidelines have been fulfilled.[33]
Where the Secretary is satisfied that one or more of the conditions in
subsection 40-1010(2) has not been met, the Secretary must give notice of this
to the Commissioner for Taxation and no tax deduction can be claimed in these
circumstances.
3.32
To receive the carbon sink forest tax deduction, tax payers must
complete a Notice of Establishment of Trees in a Carbon Sink Forest Form. The
notice requires the taxpayer to declare the locations where trees have been
established, the species planted and that the trees meet the forest
characteristic requirements and comply with the environmental and natural
resource management Guidelines. These claims will be assessed by the Department
of Climate Change, taking into account the information submitted by the
taxpayer.[34]
3.33
Mr Carruthers also explained to the committee that DCC would be assisted
in its assessment of a taxpayers claim by satellite records developed under the
National Carbon Accounting System. Mr Carruthers said:
Through the National Carbon Accounting System we have a record
of the tree cover of Australia at the subhectare scale over more than 30 years,
so we know what is happening out there in the landscape in terms of cluster of
trees. It is a very simple matter to check the GPS coordinates on somebody's
claim against what satellite records show at the point from establishment out
in time.[35]
3.34
Mr Carruthers told the committee that, as these satellite records are
publicly available, taxpayers would be able to use them to demonstrate their
claim that they are planting on non-forested lands.[36]
Mr Carruthers also told the committee that
Given the keen public interest in these matters, I am sure that
it would not just be the Department of Climate Change that would have its eyes
and ears open in determining and assessing conformity with the legislative
provisions to see whether there may be nonconformity. I am sure that there will
be many interested parties, including the buyers of the carbon credits and
organisations like Greening Australia and other public voices.[37]
Committee view
3.35
The committee notes the concerns raised in relation to the simple and
generic nature of the Guidelines. The committee recognises that many submitters
would like to see greater clarity in relation to how specific environmental and
natural resource implications of carbon sink forests will be managed. At the
same time the committee recognises that the reliance on existing state and
territory regulatory structures will provide realistic compliance and
administration costs for both government and taxpayers.
3.36
More significantly, the committee recognises that establishment of
uniformity across the states and territories in relation to the full range of
relevant legislative instruments would be no small undertaking. The committee
also accepts the proposition that the inclusion of a greater level of detail
within the regulations may render them unworkable or result in perverse
outcomes. The committee notes that the Guidelines appear to be consistent with
other government initiatives at both a state and Commonwealth level and appear
to be capable of responding to changes in regulatory requirements over time.
3.37
However, the committee also notes the concerns raised in relation to the
consideration of ground water in hydrological analysis within water systems.
This committee is aware of the complex interrelationship between ground water
and surface water. The committee's predecessor registered its concerns in
relation to the regulation of ground water extraction and the need for state
and territory governments to undertake reviews of ground water allocations in
its inquiry into Water Policy Initiatives.[38]
In this context, the committee supports the inclusion of specific reference to
ground water in the Guidelines.
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