Understanding your legal oblications in a soil carbon farming project
Soil carbon farming is on the radar of many Australian farmers. So, what are some of the key legal issues landowners should understand before entering into a soil carbon project agreement? Solicitor and business manager Georgina Lamond of Moin Morris Schaefer highlights the five most-commonly asked questions by farmers considering soil carbon farming.
Georgina Lamond, solicitor and business manager at Moin Morris Schaefer, has a strong interest in commercial transactions and business operations. She advises a multitude of leading farmers across New South Wales on soil carbon farming project agreements.
Georgina answers some commonly-asked questions farmers are asking – or should ask – when reviewing their contractual obligations under a soil carbon farming agreement. Subject matters such as project ownership, termination clauses, and the sale of a farm asset under a carbon farming project agreement in place should be seriously considered by landholders, she says.
Q1: Why do I need someone else’s consent to run the project when I own the land?
A: This is only required if you have a mortgage, a native title claim, or if you do not own the land but are simply leasing it. If there is a mortgagee, i.e. you have a loan with the bank, then you will require your bank’s consent to register a carbon project.
This is because the bank has an interest in the land and is required to ensure that they are confident the project will not impact on the value of the land, your ability to generate revenue from existing farming operations or your ability to service the debt.
It could be beneficial to engage with your bank from the outset of your soil carbon project to assist with the process of applying for eligible interest holder consent.
Q2: Do I need a project developer? Why can’t I just do it all myself?
A: There is no legal reason why you can’t register, manage and report on your own soil carbon project without engaging the services of a carbon project developer. However, even if you do choose to go it alone, there are certain steps in the process that legally require an independent party’s input. For example, developing a Land Management Strategy and undertaking soil sampling steps in the project.
For many landholders, the complexity and volume of administrative and reporting requirements is too burdensome, so they choose to engage a carbon project developer.
As with any emerging industry, the ecosystem of providers available to landholders is continually growing. Whereas not too long ago there were only a few carbon service providers with set service models operating in the market, today, the options available to landholders are far more diverse, from full-service models right down to a pay-as-you-go, or ‘pick and mix’ type options.
Finding the right partner to assist you with your project is critical. Considering your objectives, risk appetite and expectations before entering into a carbon project agreement will almost certainly help guide landholders to find the right project partners to help carry out their project.
Q3: What if my relationship with my carbon service provider sours?
A: Soil carbon project agreements are often lengthy (we’re talking 10-25 years) legal commitments. It’s highly unusual to enter into a contract for that long, which is why we recommend negotiating with your carbon service provider to include a termination clause which allows both parties to terminate any Carbon Project Agreement for reasons other than just breach of contract.
Broader termination clauses allow the landholder to terminate if the carbon service provider is no longer commercially competitive, if there is a change in control of the service provider and the landholder doesn’t feel they are being adequately serviced or if the relationship simply breaks down between the parties for any other reason, for example. From our perspective, the risks of entering into a 10-25 year commercial relationship in such a rapidly evolving area should be seriously considered by landholders prior to entering into any agreement.
With the current growth in service providers in the sector, it is likely we will start to see more service models that buck this trend and don’t require landholders to enter into such lengthy agreements. From a risk management perspective, these more flexible models seem to be more attractive to landholders in our experience, all other things being equal.
Q4: Can I sell my property within the project’s permanence period?
A: Soil carbon projects are lengthy commitments, with the option of 25 or 100 year ‘permanence periods’*. Whilst you may not currently have the intention to sell your property within the next 25 years, it is possible your circumstances may change, or you may change your mind over this time.
The good news is that having a soil carbon project running on your property does not prevent you from selling your land. There are a couple of important things to note, however, if this does come up.
A project under the ERF ‘runs with the land’. This means the obligations under the project will pass to any new owner of the land. Most carbon project agreements will require the landholder to disclose the existence of the agreement and the project to prospective buyers and to use their best endeavours to arrange for the new owner to sign a deed committing to abide by the terms of the agreement. Beyond this, the biggest challenge – or potential opportunity – for landowners selling their property with a project already in place will be finding a suitable purchaser who is willing to take on the project with the land. Again, partnering with the right advisors, such as valuers, real estate agents, lawyers, accountants and financiers with experience in the carbon industry will be critical to those who find themselves in this situation.
Q5: Could my farm data be owned by someone else?
A: Data utilisation for commercial purposes in farming is on the rise across the sector, making farm data a valuable asset class for farmers and landholders. Harnessing the data generated on-farm presents numerous exciting opportunities for farmers.
Collecting and aggregating farm data is also of great interest and value to service providers who can use it to improve their systems and processes, technology and even for commercial purposes.
Most carbon service agreements will have clauses dealing with the intellectual property rights in relation to data created throughout the course of the carbon project. From the landholder’s point of view, ideally the agreement will enable them to:
- Retain ownership and control of the distribution of the farm data at all times; and
- maintain a right to use any reports and analysis produced by the service provider throughout the life of the project and beyond.
It is important to review and understand the terms of any service agreements or terms in relation to ownership of intellectual property. The key questions to consider when reviewing these terms are:
- Am I the owner of my farm data?
- How do I access my farm data?
- Can I ask the service provider to delete my data if I want to?
- Does the service provider comply with the National Farmers Federation Farm Data Code?
Q6. My carbon project developer has asked me to ‘assign the legal right’ – this sounds serious. Is this something I should do?
A: Under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) the Project Proponent must have the legal right to carry out the soil carbon project. The Clean Energy Regulator (Regulator) states that this includes having:
- the right to carry out the project activities on or for the sites or assets included in the project, and
- a lawful and exclusive right to be issued all Australian Carbon Credit Units (ACCUs) that may be created as a result of the project activities.
Assigning the legal right to the Project Proponent is a legislative requirement. It should be noted however, that a carbon service provider should only ask the landholder to assign the legal right to carry out the project and be issued all ACCUs under the project if they are going to be registered as the Project Proponent.
Given these rights are being assigned, it is important for the landholder to ensure any carbon project agreement with the carbon service provider adequately deals with the timely transfer of ACCUs to the landholder once they have been issued to the carbon service provider. There are various ways of ensuring this, and this should be something you discuss with your lawyer and/or accountant before entering into a Carbon Project Agreement.
For further information or to speak with an experienced solicitor with carbon industry knowledge, contact Georgina Lamond at Moin Morris Schaefer (Armidale): 02 6772 4899 or email@example.com.
*Projects that sequester carbon in soil are subject to a permanence period of either 25 or 100 years. The permanence period is the period for which the landholder must protect and maintain the credited carbon stocks by maintaining the project (even though the project’s crediting, reporting and delivery periods may have ended). When registering a project, you must elect either a 25 year or 100 year permanence period.
Disclaimer: Precision Pastures is not a carbon project developer. Precision Pastures offers independent soil testing and agronomy advice, in addition to soil carbon project services. This content is for general informational purposes only and does not contain or convey legal advice. The information is not designed to provide legal or other advice, or create a lawyer – client relationship. You should not take or refrain from taking action based on this content without first consulting a lawyer.