Author: Partners Kylie Wilson and Suzy Cairney
Carbon, wind and solar have been active in Queensland over recent years. Unlike mining and gas, the nature of the agreements entered into between landowners and third parties in these areas are not legislated, beyond some specific requirements related to carbon.
Therefore, before any documents are signed, it is important that experienced advice is obtained about
any agreements as the impact on the business can be significant if the relevant landowner is not fully
informed about their obligations under any such agreements.
Carbon
Carbon Project Agreements generally provide a permanence obligation of 25 years or 100 years being the set period of time required to maintain the carbon stored or sequestered for a project. Audits every five years of these projects can lead to the issue of Australian Carbon Credit Units (ACCUs). ACCUs are established under the Carbon Credits (Carbon Farming Initiative) Act 2011 and the Carbon Credits (Carbon Farming Initiative) Rule 2015. This legislation is administered by the Minister for Climate Change and Energy, the Department of Climate Change, Energy, the Environment and Water and the Clean Energy Regulator (the Regulator).
Carbon Service Providers (CSPs) are usually companies who engage with the Regulator and the landowner
and generally draft carbon project agreements. As such, the agreements will generally be drafted to
favour the CSP’s position. There are multiple factors landholders need to be conscious of, and obtain
advice about, before entering into a Carbon Project Agreement.
Some of these include:
- Who is the project proponent? — Most agreements will have the CSP as the project proponent. However, landholders can choose to be the project proponent and appoint a CSP to act as their agents in dealing with the Regulator. There can be significant advantages to this as the project proponent receives the ACCUs in their name. The landholder in most agreements will have the responsibility to remediate the land in a way that will generate the ACCUs in any event.
- Managing the land – Most agreements will require the landowner to put in place land management
practices that are likely to lead to ACCUs being generated. This might not always align with other
income generated from the land. This can lead to conflict between the landowner and the CSP as
most agreements will not allow land management strategies to be changed without the consent of
the CSP. - Sale of land and succession – Not all CSP agreements deal with this issue in a manner that is commercial for the landholder. Often agreements will prohibit a sale or transfer without the incoming transferee accepting a novation of the agreement. Landholders need to be conscious
of this before making long term decisions about ownership of the land, particularly given the
agreements themselves have very lengthy terms. - Income from ACCUs – There are multiple issues to consider for primary producers in this respect.
It is important that appropriate taxation advice is obtained before contracts are entered into.
Wind and solar
Entering into agreements for wind and solar projects on rural land can provide excellent opportunities for
diversification of income for rural business, but care needs to be taken in entering long term contracts
that impact the land. Wind and solar projects are commercial agreements, not subject to legislative
restrictions in the negotiation process and landholders need to be very conscious that the entity they are
negotiating with may not be the entity they are ultimately in a long term commercial relationship with.
Things to consider
From a legal perspective some initial issues to consider before entering into an agreement including the following:
- Who are you negotiating with? Do your due diligence on the company that is approaching you, are they likely to be developing the project or are they just looking for an opportunity to on sell the
land access? - Have you considered the rights of the parties after the initial agreement is entered into? For example, if you have signed an option agreement, were the lease terms attached to it? If not, you may not know on what basis the land is being leased if the option is exercised.
- Have you considered the impact on land use and land management? Do the agreements appropriately deal with those issues?
- Are there appropriate make good and rehabilitation provisions when the project ends?
- Carefully consider any lease terms. Most leases will have lengthy terms and it’s important to
ensure that the terms are commercial, protect the landholders continued use of the property
where appropriate and that the rental being paid is, at the very least, indexed to CPI. - Who is paying legal, accounting and valuation costs? This can be a problematic issue and
should be addressed at the very start of negotiation. - Consider taxation planning and succession before entering into agreements. There may be the opportunity to appropriately structure for the longer term, but this may be difficult to achieve after initial agreements have been entered into.
The opportunities in this area for landholders are likely to continue to increase. It is important to ensure however that appropriate legal, accounting and financial advice is obtained before entering into agreements.