Land Court considers claims for impacts on carbon farming for mining lease compensation04 March 2019
A landowner has claimed compensation for the impacts of a mining lease on its carbon farming operations and the potential loss of carbon credits. In Palmer River Pty Ltd v Callaghan & Anor  QLC 38 (Palmer River), the Land Court of Queensland considered these claims when assessing compensation for the renewal of the mining lease. With carbon farming becoming more common, claims for loss of carbon credits may also increase in frequency for all resource authority holders.
In Palmer River, the miner was seeking to renew an existing mining lease of approximately 43 ha, 7.1 ha of which was on the land of the landowner. The landowner operated their property as a grazing property and traded in carbon farming. The miner and the landowner had attempted to negotiate an amount of compensation and while some elements of compensation had been agreed, no final agreement was concluded. The landowner claimed that any compensation should include an allowance for the potential destruction of trees by a fire caused by mining activities and the consequential loss of carbon credits.
The landowner’s concerns about a fire and the loss of carbon credits were not limited to the mining lease area. The landowner was concerned that if a fire broke out on the mining lease area, it could spread to other parts of the property where carbon farming was carried out resulting in a loss of carbon credits to the landowner.
Compensation claim for carbon credits
The landowner’s consultant assessed compensation for carbon farming by calculating the area of land that corresponded to an Australian Carbon Credit Unit or ACCU. The landowner’s consultant divided the total area of the carbon farming project by the landowner’s baseline period of CO2-e to determine the area of land that corresponded to a single ACCU (which in this instance was 6.061 ha per ACCU). As the value of an ACCU was known—and was valued at $11—the consultant’s view was that for each area of 6.061 ha lost in a fire, the landowner should be entitled to $11 for loss of carbon credits.
Compensation for carbon credits
The Land Court considered the compensation entitlements under section 281(3) of the Mineral Resources Act 1989 (Qld) (MRA) and found that “the potential loss of carbon credits consequent upon an outbreak of fire is too speculative to be included in a determination of compensation”.
The Land Court went on to say that “…any fire on the land could cause a large loss to the respondents farming abilities. Accordingly, the impact of any fire which might, speculatively, occur in the future for presently unidentified causes, in unidentifiable areas, with equally unidentifiable consequences, remain un-ascertainable and can sensibly only be dealt with by way of an application back to this Court” pursuant to the material change in circumstances provisions.
In other words, because there may be no fire and no loss of carbon credits, the landowner may not incur any loss or damage for which compensation was payable under section 281(3) MRA. Therefore no amount could be awarded for that risk in the determination of compensation at the time of the renewal.
However, the Land Court did observe that if a fire did break out and cause loss, the landowner would not be without recourse and could make a claim for compensation, including potentially for a material change of circumstances under s 283B of the MRA.
Implications for resources companies
The Land Court in Palmer River did not rule out claims for compensation for loss of carbon credits to landowners in other compensation matters. For compensation to be awarded for such a loss, there will likely need to be a more direct link between the loss of carbon credits and the impact of the mining lease rather than a speculative connection.
The Land Court also didn’t comment on the methodology adopted by the landowner’s consultant in this instance for the calculation of compensation for the loss of carbon credits. This is primarily because it was not required to make a determination of compensation for carbon credits, although this is also consistent with the approach adopted by the Land Court in many previous cases where it has found that there is no prescribed methodology for determining compensation and each case will depend on its particular facts and circumstances.
If a loss of carbon credits was to be included in a determination of compensation in the future, care will need to be taken to ensure that any methodology adopted did not result in a doubling up of compensation. For example, it could be the case that a loss of carbon credits may form a stand-alone component of compensation in some instances, but in others may be inherent within another component such as the value of the land if compensation is being assessed on the basis of a total loss.
While this case concerned mining leases, it may also be the case that if a landowner was entitled to compensation for the loss of carbon credits for a mining lease, they may also be entitled to compensation for a loss of carbon credits for other resource authorities, including petroleum authorities and exploration tenements. Resources companies will need to be aware that loss of carbon credits may form part of negotiations and claims for compensation in the future.