Carbon Farming Knowledge

Summary of Session 3: Emissions Reduction Fund (ERF) and the future for carbon trading

Summary of March 2015 workshop presentation by Richard Eckard, University of Melbourne and the Primary Industries Climate Challenges Centre

Background

The carbon trading landscape changed at the end of 2014 with the introduction of the Emissions Reduction Fund (ERF), replacing the Carbon Farming Initiative (CFI). Landholders can still receive carbon credits for reducing emissions from agriculture and land use and increasing the carbon stored in soils and vegetation. Individuals and businesses can buy CFI credits to offset their emissions. Participation is voluntary.

The new ERF

Under the ERF, the Commonwealth Government has become the buyer of Australian Carbon Credit Units (ACCUs). Under the old CFI system, companies had to either pay the carbon tax or buy carbon credits to offset emissions. The ERF will conduct ‘blind’ reverse auctions through AusTender a number of times a year. There is $2.55 billion in the fund to buy ACCUs over five years.

The first auction was held on April 15 and 16 where 107 carbon abatement contracts covering 47 million tonnes of carbon dioxide emitted were purchased at an average price of $13.95/t. These were signed with 43 contractors covering 144 projects, the largest sequestering 3.5Mt CO2e down to the smallest at 12,000t. The total value of the contracts was $660 million, or about 25% of the government’s total budget.

The ERF has three key elements when it comes to emissions reductions. It credits reductions through government-approved methods requiring a practice change from participants. It purchases emissions reductions earned in the form of ACCUs. Remembering that ACCUs are like a share certificates in that they do not have value in the marketplace until they are traded. Participants need to enter into a Carbon Abatement Contract at a reverse auction where the quantity, price and delivery schedule for ACCUs is set. The third element is the safeguard mechanism for emissions reductions. This element is yet to be fully explained however it will ensure that emissions reductions purchased by the Government are not offset by significant rises in emissions elsewhere in the economy.

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*Source: Richard Eckard, Primary Industries Climate Challenges Centre

Uptake of methods

There are a number of land sector ERF/CFI methods approved to date (June 2015) including:

  • Agriculture, 7 approved projects, with 101, 212 ACCUs issued.
  • Savanna burning, 34 approved projects, with 1.33 million ACCUs issued.
  • Vegetation, 82 projects, with 5.41 million ACCUs issued.
  • Landfill, 82 projects, with 7.74 million ACCUs issued.

Implications for agriculture

Referring to the diagrams above, the main emissions in a cropping system come from N fertiliser use (36%), residues (35%), diesel and energy use (17%), and leaching and volatilisation (12%). In a livestock system, enteric methane accounts for 78%, diesel and energy 12%, manure and urine 7% and leaching and volatilisation 3%.

Opportunities for broadacre farmers are limited in the ERF at present. Several issues contribute to this including that the ACCU prices may not be a strong incentive for involvement and the minimum bid size at auction is 2000t per year which for most land sector projects is not achievable so aggregation will be required. However, research is ongoing and is expected to deliver cost-effective options for the future.

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PICCC anticipates there will be international and domestic prices on carbon and binding limits on emissions at some stage in the future, so there will be carbon trading in some form. Carbon footprints will be used in trade as a marketing and sales incentive, such as the European Union might import GM-free canola from WA for biodiesel.

It is expected that emissions from agriculture will be either covered in policy eventually or will gradually become a bigger percentage of Australians total emissions. As bigger industrial emitters reduce their emissions, agricultural emissions will become more significant and more focus will be placed on them. An effective carbon price of more than $100/t may be reached in the future, perhaps in the next 10-15 years. This will have implications for diesel and urea prices.

Future discussion for agriculture is likely to focus on intensity of emissions. But it will need to be considered how a growing world population is to be fed if total emissions are to be reduced.

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Useful resources

Emissions Reduction Fund – www.environment.gov.au/climate-change/emissions-reduction-fund

The National Greenhouse Gas Inventory – http://ageis.climatechange.gov.au/

Building Farmer and Advisor Knowledge in Carbon Farming Project – www.carbonfarmingknowledge.com.au

Greenhouse in Agriculture – www.greenhouse.unimelb.edu.au

More information: Richard Eckard, 03 9035 8265, richard.eckard@unimelb.edu.au

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