Carbon Farming Knowledge

Summary of Session 5: Carbon trading in practice

Summary of March 2015 workshop presentation by Ben Keogh, Australian Carbon Traders

Background

Carbon trading is designed to direct investment to the most cost-effective abatement activity. New activities that reduce the levels of greenhouse gas going into the atmosphere may create Australian Carbon Credit Units (ACCUs).

A credit is issued based on a farmer’s ability to prove a reduction in carbon emissions over time associated with a parcel of land. It comes down to ‘what would emissions have been like if the current on-farm practice continued’ versus ‘how have emissions been reduced as a result of making a change to on-farm practices’.

There are many sources of possible reductions, such as fertiliser and manure management, reduction of enteric fermentation, avoided deforestation, crop residue management, rice emissions management, legacy landfill emissions, waste management and savannah burning management.

Farmers are storing carbon in the landscape in a number of ways, such as native plantings, agroforestry, improving forest management and soil carbon sequestration through plant residue management and changing crop land to perennial pastures. For any farmer to earn carbon credits they must undertake their activity using an approved ERF method.

Factors to consider

Farmers deciding whether to pursue opportunities in the carbon trading market should consider the following …

  • Get professional advice

Independent legal advice is recommended or the use of a recognized expert in the carbon trading market. There are many sub-rules to consider so professional advice can help to determine if you have a project that will fit the overarching guidelines, and how to go about it. A professional adviser will assess how difficult and costly the project is to implement, do some preliminary calculations to assess viability, consider the project timeframe including matching the different perspectives of a young farmer versus an older farmer who might be concerned about the next generation. Every farm is different and some (sequestration – forestry and soil) carbon farming projects and relationships developed during them are long-term. Growers must consider how difficult the project will be to implement, and the risks and returns.

  • Roles

There are different roles and responsibilities between professionals in the carbon trading market, for example:

  • A carbon pool manager will transfer carbon rights and obligations and take a percentage of the financial benefit from the project.
  • A project that is self-managed is a do-it-yourself approach, there will be more administration but also more benefit through retained funds.

Case Study – Ursino Station

Region: North-west NSWSize: 80,000 hectares across three propertiesRainfall: 260 millimetres

Project aim: Generate carbon credits through natural regeneration and promotion of natural seed sources. Increase the forest extent through germination of new seedlings, increased growth of suppressed in situ rootstock, increased crown thickening, and increased infilling in between small stands.

Changes made: Before mid-2007, up to 14,000 DSE were run on 80,000 hectares. At that time, 3000 sheep were removed and traps set for goat removal.

Changes observed: In 2008, new growth started sprouting from Mulga rootstock. In situ rootstock was free to grow even on limited moisture. Shrubs and ground cover began to return.

By 2010, the properties were in the middle of an extended wet period, they had been destocked for three years and goats were controlled.

From October 2008 and February 2011, 14 out of 17 months were wetter than average. Regeneration became abundant and vigorous

Benefits: The landholder receives carbon credits through a long-term purchase agreement with government. They can also opportunistically graze cattle.

Veg1

Before the regeneration project (above) and regrowth during the project (below).

 Veg2

  • An agency is a fee-for-service operator who will take a percentage of the benefit generated by the carbon farming project. The landholder manages the project but the agent acts under the authority and on behalf of the landholder. The landholder employs an agent to prepare the scheme documentation, liaise with government contacts and bid in a ERF auction. The agent has no ownership of the on-farm carbon project or its credits. The fee structure for an agency service can vary – perhaps up to 30% of the total or a per credit or flat rate.
  • An aggregator will bundle ACCU parcels from landholders to create projects of greater scale. Unlike agents, aggregators must be part of the project and own or control part of the carbon rights. They are responsible for the management of the project and that it meets its scheme requirements.
  • A joint venture partner will share costs and management of the project, as well as the financial benefits.
  • Size and purpose

When it comes to projects for carbon trading, the mantra is generally ‘the bigger, the better’. This helps to reduce the project cost per ACCU and assist to reach the required minimum bid size of 2000t per year. However, the scale of a project can depend on the methodology being targeted. For a project involving mulga regeneration, at least 10,000ha is needed to create enough credits.

  • Cost and returns

Setting up a carbon farming project to trade credits is not cheap. For example, estimates are that undertaking a reforestation project can cost $200,000 because of the monitoring, reporting, verification and onsite visits, or for an avoided deforestation or native forest protection project, costs can be in the order of $300,000 or more. The 30% of gross is the industry rule for what carbon managers are paid with on average 70% of the sale price going to landholders.

However, farmers who have taken up projects believe the value in participation is not only in the sale of ACCUs but also in improving farm efficiency.

Useful resources

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

The Carbon Farming Initiative – www.mycfi.com.au

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

More information: Ben Keogh, Australian Carbon Traders, 0425 877 676, ben.keogh@australiancarbontraders.com

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