"Excessive red tape" proposed by the federal government for its own voluntary carbon market will create sovereign risk for Australia, market players have warned.
Under the plans, the federal agriculture minister and department could step in and potentially veto some new or expanded carbon farming projects, which would undermine farmers and businesses trying to make their own decisions about offsetting emissions.
"Unsupported by any firm evidence, this is an extraordinary double whammy proposal from a Liberal National government," Carbon Market Institute chief executive John Connor said on Monday
The proposals create an additional compliance burden in an already heavily regulated industry and risk delaying investment in regional areas, sustainable agriculture and drought resilience, he said.
The proposed change to the carbon credit rules would affect two methods: human-induced regeneration (HIR) of native tree species in a local area and native forest from managed regrowth (NFMR), according to the federal consultation paper released in December.
Some had raised concerns with government that carbon farming was reducing agricultural productivity and harming regional communities as well as limiting the management of fire, feral animals, weeds and pests.
"Rather than being beneficial for regional Australia, the restrictions would have a disproportionate impact on landholders, particularly smaller farmers," Mr Connor said.
The amendments may also undermine the stability of Australia's carbon market, stifling critical investment into the supply of Australian Carbon Credit Units (ACCUs), the institute warns in its submission seen by AAP.
"At a time when the Government has been seeking to expand supply of ACCUs and decrease unnecessary red tape, the proposal at best mixes the message but also raises significant sovereign risk concerns."
Australia's international commitments on emission reductions and to reverse deforestation by 2030 may also be imperilled, the institute warns.
Rising demand and limited supply have seen ACCU spot market prices rise to nearly $60 from $16.50 this time last year, according to researchers at RepuTex Energy.
Prices for so-called nature-based offsets have also hit record highs internationally, and some analysts expect prices to increase 50-fold by 2050.
But the new uncertainty about rules in Australia, and any new timelines, could unsettle the next Emission Reduction Fund (ERF) auction.
The minister's potential 75-day period for consideration of adverse findings would jeopardise many projects in the pipeline for the bid window of April 5-6, the institute said.
The institute has urged the government to make no changes until it has considered detailed research already underway and a review due from the Climate Change Authority.
The Clean Energy Regulator, which issues ACCUs, has been contacted for comment.
