current share price 26cents; 2014 eps 26cents, page-27

Hi Gizard,

In response to your follow up questions, I have sought advice directly from CCF management to ensure accuracy. Hopefully this response will answer your questions.

Firstly, yes, customers pay ongoing fees for 15 years in accordance with the number of trees planted. As the number of trees increase, so do the fees. Over time this builds into a self-sustaining income stream.

Carbon credit generation occurs annually and is linked directly to the growth cycle (or sequestration curve) of the Mallee Eucalypt tree. As a tree grows to maturity its ability to sequester carbon increases, so the amount of carbon credit generation also increases. CCF's customer contracts cover the first 15 years of the life cycle of the tree, and the customer earns all the carbon credits generated by each tree during that period.

After the contracts expire the carbon credits generated by the trees for the remaining years of its life cycle reverts back to CCF and can be traded and sold. This represents a significant source of future recurrent income for CCF.

You also asked about "what if's" in relation to fire, drought and disease.

Customers accept a level of risk when they sign a contract with CCF in relation to such events. These risks are factored into CCF's commercial model and is supported by the evidence of CCF's exclusive scientific data base on Mallee Eucalypt growth and over 60 years of combined Mallee Eucalypt forestry experience within the management team. These risks are fully disclosed, explained and understood by the customer before they sign their contract.

Obviously CCF tries to minimise such risks from the outset by using its scientific knowledge and intellectual property to select drought and disease tolerant species. In addition, customers can take out insurance to protect their plantations and minimise their exposure to such risks.

The Carbon Farming Initiative also provides a "risk of reversal buffer" which is a self-insurance mechanism that ensures customers don't have to pay back any carbon credits earned and then subsequently lost through natural events such as a bushfire.

The bottom line is that CCF's customers assume the risks associated with fire, drought and disease; CCF doesn't lose money.

In the event that tree survival numbers drop below 90% in the first 12 months after planting, CCF is required to replant the lost trees. In 2011 CCF's survival rate was well over 90%.

As far as barriers to entry for new players in the carbon farming industry are concerned; they are significant.

The biggest barrier would be the lack of a substantial database of growth measurements and proven ability to consistently achieve growth projections over a 15 years period.

CCF already have this, which is why major companies like Origin Energy and BP are confident signing contracts with CCF.

Without this database and a history of proven results, a new player in the market would struggle to gain commercial acceptance and would most likely receive a substantially reduced carbon growth number under the Carbon Farming Initiative.