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The carbon farming initiative - brown gold or fools gold?

10 Sep, 2012 03:00 AM
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The carbon price started on 1 July and provided the sky doesn’t fall in any time soon, farmers will have the opportunity to engage with the new carbon economy through the Carbon Farming Initiative. The CFI provides farmers a chance to generate carbon offsets (known as Australian Carbon Credit Units) for sale to the country’s biggest emitters of greenhouse gases. But is this new stream of potential income “brown gold” or will it turn out to be nothing more than Fool’s Gold?

There aren’t many statistics available on the potential size of the carbon offset market. One way to look at it is to estimate the potential demand from companies that will need to pay the carbon price, then work out what percentage of their net emissions can be offset, and the price paid for those offsets. In the coming 3 financial years the carbon price will rise from $23/tonne carbon dioxide equivalent to $25.40/tonne and big emitters will be able to offset 5% of their emissions. This translates into over $300 million per annum potential demand for carbon offsets. That’s about an order of magnitude larger than the funding recently provided by the Federal Government through its Action on Ground program that is designed to trial practices to reduce agricultural greenhouse gas emissions and sequester carbon in the soil.

But that’s just the beginning. In 4 years time, the carbon price goes into a flexible price period, and while the carbon price floor drops to $15/tonne carbon dioxide equivalent, the top emitters will be able to offset all of their emissions by purchasing ACCUs. Even though current policy says that they can purchase up to 50% of offsets from overseas sources, this still translates into potential demand for Australian generated carbon offsets of $2.5 billion per annum. That’s more than double the money that went to farmers and land managers each year during the decade of Landcare. This could be conservative depending on what you think the price of carbon will be in the years to come.

On the other hand, some commentators argue that we should move to a floating carbon price sooner rather than later. This could result in the price of offsets moving closer to what we see overseas. Even if this did occur and prices fell to well below $10/tonne, there is still likely to be a billion dollar per year demand.

But before we start to get too excited it’s time for the reality pill. These are estimates of the potential demand only. To generate carbon offsets you need a government approved “methodology” and at the moment there are only four - capture and combustion of landfill gas, destruction of methane from piggery manure, environmental plantings and savannah burning. This is potentially news if you run a large scale piggery or have a station the size of the ACT in northern Australia, but for most land managers it doesn’t offer much at the moment. To be fair, there are another 9 methodologies in development at the moment, but even with these its hard to see all of the potential demand for offsets being soaked up by supply.

Untapping the potential of the Carbon Farming Initiative is going to require approved methods for a more diverse range of farmers and land managers, methods that abide by the rules and methods that make business sense. This last point is important – its one thing to have methods that present an agreed way to sequester carbon or reduce emissions, but its another issue altogether as to whether they are commercially viable.

Developing carbon farming methods will require a new wave of innovation in agricultural industries and new partnerships between researchers and farmers and other land managers. These partnerships were once strong when state funded outreach and extension was at its peak, but many would argue that are now weaker than ever. There is hope though with the continued rise of farming systems groups and potential to access Federal funding through the $64 million Carbon Farming Futures outreach and extension program.

Even once the right methods are available for farmers and land managers, there’s still the issue of how much of the money earned from selling an offset will go the farmer – that is after the service provider gets paid, the carbon aggregator takes their share, the project auditor submits their invoice ... (you get the picture).

So back to the original question – is the carbon farming initiative Brown Gold or Fool’s gold? There is certainly no Brown Gold to be unearthed by farmers and other land managers. But we’d be foolish if we didn’t start to think more about how farming industries can best position themselves to access this new market. What’s more, if we don’t move quickly we may see much of the demand for offsets satisfied by international projects at the expense of renewed innovation in our farming systems.

Dr Mark Siebentritt is a consultant who works on carbon farming, renewable energy, climate change planning and water management.

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READER COMMENTS

Southern Man
24/09/2012 8:35:41 PM, on Stock Journal

The carbon credit fraud has come to a stop..you dont mention the little fact the EU carbon trading scheme has all but colapsed..much like the CCX closed it doors there is no carbon market..they are worthless bits of paper based on thin air.

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