Thursday, June 26, 2014

Carbon Legislation, Clive Palmer and Chaos Theory

Australia's climate change laws are being changed.. The Government does not have control of the Upper House. So a small group of senators will decide what Australia's response to climate change. Their leader, billionaire miner Clive Palmer made a promise when he appeared with Al Gore on our tv screens last night. He said he would vote for an Emissions Trading Scheme when Australia’s trading partners take national action of the same type. How long must we wait for that to happen? Not long…


On a Government webpage headed “Countries acting now” we can read the following: “Australia's top five trading partners–China, Japan, the United States (US), the Republic of Korea and Singapore–and another eight of our top twenty trading partners (New Zealand, the UK, Germany, Italy, France, the Netherlands, Switzerland and Canada) have implemented or are piloting carbon trading or taxation schemes at national, state or the city level. Many countries have renewable energy targets, including fifteen of Australia's top twenty trading partners. Energy performance standards for appliances, buildings and industrial plants, as well as incentives for the use and development of low emission products and technologies are now widespread.”

Clive Palmer fits the definition  of "Chaos Theory in Lawmaking" - which means that, for all the strategy and planning and consultation that takes place, their is no logic to the process and no guarantee that what comes out the end of the process will resemble anything like the intention of the policy makers or anyone engaged in that process. Because it is a human process. Bismark is reported to have said that lawmaking is like sausage making. Love of the law or love of sausages can be soured instantly if one sees how they are made.

Clive Palmer could be the best thing that has happened. He said Al Gore changing his mind on Emissions Trading Systems. There's more change coming... Hold onto your hats.

Wednesday, June 11, 2014

Australia's target could triple in 2 years!

What happens to the demand for carbon credits under the Emissions Reduction Fund if our target is tripled to 15% in 2016 (two years away)? It could happen. Read on...

While Australia's political leadership is confused about the direction the rest of the world is taking on Global Warming,  the rest of the world is getting serious about it. ''There is no sign - no sign - that trading schemes are increasingly being adopted. If anything trading schemes are being discarded, not adopted,'' said PM Tony Abbott while in Canada recently. In fact, the World Bank reports that eight new carbon markets opened in 2013: California Cap-and-Trade Program, Quebec Cap-and-Trade System, Kazakhstan Emissions Trading Scheme, and five Chinese pilot emissions trading schemes (Shenzhen, Shanghai, Beijing, Guangdong, and Tianjin). And new carbon taxes were introduced in Mexico and France this past year. But the big news is that the three biggest emitters of greenhouse gases last week made game-changing moves on climate. China – Emitter No. 1 – announced it will set an absolute cap on its emissions from 2016. Setting an absolute cap instead of pegging them to the level of economic growth means they will be more tightly regulated, reports Reuters. China is now the second largest carbon market in the world.  In America – Emitter No. 2 - the EPA announced a national standard to cut carbon emissions from coal fired power plants. US states can join cap-and-trade programs, building on the 10 states with market-based mechanisms, or start their own. In India – Emitter No. 3  - the people just elected as Prime Minister Narendra Modi, who pioneered incentives for large-scale solar power. He wants to use solar technology to supply electricity to 400 million people in India who do not have power.
These events make a new global climate treaty in Paris in December 2015 more likely. This will set dominoes falling in Australia which has set itself higher targets should the rest of the world fall into line, which now seems likely. We have already promised to reduce emissions by 5% of 2000 levels by 2020.  The target increases to 15% if there is an international agreement where developing economies commit to reduce emissions and advanced economies take on commitments like Australia’s. China and India are classified as ‘developing economies’.  The target increases to 25% if there is comprehensive global action capable of stabilizing CO2 levels at 450ppm or lower. 
At the same time, public opinion is swinging behind action on Climate Change as people are noticing Nature acting scarily like the scientific predictions that the denialists had rubbished. The Bureau of Meteorology reports that Australia’s climate has warmed by 0.9°C since 1910, and the frequency of extreme weather has changed, with more extreme heat and fewer cool extremes. Extreme fire weather has increased, and the fire season has lengthened, across large parts of Australia since the 1970s. Sydney broke its previous records for warmth in May, with maximums almost 4 degrees above average. Sydney Observatory Hill had its warmest May on record. The city experienced 19 consecutive days above 22C, and four consecutive days above 25C. Only one May day had a top temperature below 20C. Sydney Airport recorded it’s warmest autumn since 1958 with 21 consecutive days above 20C and seven days in a row reached at least 25C.
Public attitudes re shifting rapidly; the 2014 Lowy Institute Report revealed that 45% of Australians see global warming as a ‘serious and pressing problem’, up five points and the second consecutive increase since 2012. A significant majority (63%) say that the government ‘should be taking a leadership role on reducing emissions’. Only 28% believe ‘it should wait for an international consensus before acting’. 
In ancient times, King Canute had a his throne placed on a beach in England in front of the advancing tide and commanded the sea to retreat - to demonstrate to his followers that even he could not defy Nature. There's a lesson in that somewhere.



Thursday, June 05, 2014

The Carbon Coalition, Carbon Farmers of Australia and the Carbon Farming & Trading Association


Since 2006, the Carbon Coalition and Carbon Farmers of Australia, have been a de facto industry body for those interested in the multiple benefits of soil carbon. We have staged the National Annual Carbon Farming Conference and Expo and the Carbon Cocky Awards 7 times, and pioneered education in the field, with countless seminars and workshops (Carbon Farming 101 and Advanced Carbon Farming & Trading). Several editions of the Carbon Farming Handbook have been published. CSIRO’s Dr Jeff Baldock said we were instrumental in the $24m Soil Carbon Research Program funding: “You deserve a pat on the back.” Minister Greg Hunt said, “There would be no Carbon Farming Initiative were it not for the efforts of Carbon Farmers of Australia.”
   The Association has been very active in the Carbon Farming Initiative since its inception. It has been a strong voice for farmers in the consultation process associated with the passing into law of the Carbon Farming Initiative (Carbon Credits) Act 2011 and has since been involved in commenting on regulations. Since the Act was passed, the Association has provided a focus for the emerging industry and built bridges between stakeholder groups, including farmers, scientists, brokers, advisers, and policy makers.
   We have engaged with the CFI at every level so we can give first hand advice to members:
• Developing a CFI methodology for sequestering carbon in soil
• Awarded an Australian Financial Services Licence (to be able to give advice about Australian Carbon Credit Units)
• Achieved Recognised Offsets Entity (ROE) status (qualified to manage a CFI project)
• Awarded an ANREU account – Australian National Register of Emissions Units – a facility for receiving CFI credits
• Applied for Eligible Offsets Project with a small native species planting (to learn the process of executing a CFI Methodology.)
• Assisted a business to achieve carbon neutral status, to help create a market for soil carbon offsets.
• Assisting a farmer investigate a Methodology to enable users of a ‘4th Generation” biochar-based natural fertiliser to earn offset credits for soil carbon sequestration and reduced nitrous oxide.
   We have been getting to know marketplace operators we can trust to provide trading and related services to members, including lawyers, brokers, project originators, advisors and accountants. We are members of the Carbon Market Institute and it’s Methodology Project Developers Group.
   We are termed ‘key stakeholders’ by the then Department of Climate Change and Energy Efficiency, the now Department of the Environment, and submit contributions to relevant consultation papers. (We meet with officials of the Department at least 4 times a year.)
   We respond to a constant stream of requests for information, by email and telephone.
   We have a schedule of improve-ments to the CFI that we are addressing. In the first instance, we are lobbying the relevant federal politicians for a flexible approach to the 100 Years Rule. We see this as the make or break issue.
   We are aware that the ‘official’ version of the ‘potential’ of soil carbon sequestration (always much smaller than the farmer reality) has gained prominence in the debate, due to a continual stream of mistaken reports in the press.
   We have identified a list of “high performance” soil carbon managers who have demonstrated a potential well beyond the mean identified by CSIRO, by an order of 10. These ‘outliers’ – routinely discarded and rightly so in most studies, but not in this case -  present a challenge for the scientists and policy makers. If these outliers can do it, it can be done.

   Meanwhile we are engaged as members of the Soil Carbon Reference Group, giving advice to the Department as it completes the Soil Carbon Methodology. We also serve on the Biochar Reference Group.
   Shortly the Bill to establish the new CFI – the Emissions Reduction Fund – will enter the arena of Parliament. We will be lobbying to address the access issues (100 Years, a barrier to farmer involvement) and the farmgate price (an incentive).
   We aim to see soil carbon and other farm-based offsets traded safely and ethically, and growers paid fairly for the carbon they “grow”. The Association also includes in its vision offsets arising from all other forms of on-farm carbon sequestration as well as all forms of agricultural emissions reduction.

            Call Louisa on 02 6374 0329



Carbon Credits (Carbon Farming Initiative) Amendment Bill 2014

The legislation for the Government’s new Direct Action Carbon Farming Initiative gives the Minister Greg Hunt unprecedented power to intervene in case his program needs tweaking. It appears that the program’s builders want as much wriggle room as possible to make this program work. Eg., It gives the Minister the power to make ‘legislative rules’ (308) which have the force of law. These ‘rules’ can prescribe anything that meets the aims of the Act.

The draft legislation is full of loopholes and escape hatches for maximum flexibility. For instance there is some concern about the ‘reverse auction’ system – with the Government as the sole buyer. The draft legislation not only allows for ‘a tender process’ but also ‘any other process’. (Division 3, 20F) Could ‘any other process’ include ‘banding’(similar projects compete against each other for funding). Banding on the basis of methodology groups or technology applications would level the playing field on costs.

The Government’s resolve to get a workable system is starkly displayed in this next example: Under the old Act a ‘methodology determination’ (the recipe for an activity, essential for carbon credits to be created) had to ‘comply’ with the ‘offsets integrity standards’ (eg. permanence, additionality, etc.). But the new Act requires only that it must be made ‘having regard to’ these standards. (23 Section 4) Is this just in case the integrity bar is set so high that there is no interest on the supply side? 
The vehicle for most ministerial massaging of the trading system is the ‘methodology determination’. The Minister is solely responsible for making or varying methodology determinations (recipes for abatement). When doing so, the draft Act says that he must ‘have regard to’ advice from an expert panel, the offsets integrity standards, and ‘certain other matters.’ (198 Section 105) This could mean anything. It is clear that these ‘other matters’ are not certain at this time. In another place ‘other matters’ is described as ‘such other matters (if any) as the Minister considers relevant’. (208 Subsection 114(2) Again, the Minister is given this power when deciding whether to vary a methodology determination.

The draft legislation spells out the ‘crediting period’ for eligible offsets projects (15  years for sequestration projects and 7 years for emissions avoidance projects). But while it lays down the law, it creates a large loophole in the form of a methodology determination which ‘may specify a different crediting period.’

Minister Hunt even has it within his power to eliminate the barrier many land managers see in the 100 Year permanence standard.  (Sequestration, or capture and hold projects, must be secured for 100 years.) Under existing Carbon Farming Initiative rules, a risk buffer of 5% is applied to such projects, meaning that for every 100 tonnes of carbon stored by a project, 95 Australian Carbon Credit Units are issued. This buffer means that a farmer does not have to replace credits if carbon stores are lost because of natural events such as a bushfire. Extending the CFI’s proposed 5% Risk of Reversal Buffer to 20% could remove the major barrier seen in a 100-year permanence option. The buffer units would be ‘banked’ in a ‘mutual society’-like account that can spread the risk across multiple farm businesses, multiple industries and multiple climate zones. The banked tonnes underwrite the primary tonnes against loss for any reason, removing the farmer’s liability to make good any losses. As the risk reduces with the passing of the years, a percentage of the value of the banked tonnes could be paid out in 5-year increments until the 100th year. The Minister can vary the permanence period discount number if ‘another percentage is specified in the legislative rules in relation to a particular kind of project’. (89 Subsection 16(2)).

In an attempt to make sequestration projects more attractive, the Government has included a 25-year permanence option in the Emissions Reduction Fund. The number of Australian Carbon Credit Units (ACCUs) issued for these projects will be discounted by 20% relative to 100-year projects. This discount reflects the potential cost to Government of replacing carbon stores if 25-year projects are discontinued. There is no provision for the ‘banking’ of the ACCUs or the return of units over time. And the reduction of the size of the barrier it represents in the farmer’s mind is not as effective as its disappearance altogether. There is only one man can do it: the Minister.

With so much of his political reputation riding on the success of Direct Action, it is little wonder Minister Hunt has written into the script a leading role for himself in this drama.


Tuesday, May 20, 2014

Banks’ blinkers block farmers’ carbon

Bankers and rural property agents have found that carbon farming is too hard to understand, so they have decided to opt out of the Carbon Farming Initiative. Rabobank is blocking a 5,000ha native vegetation carbon sink scheme on Cate and Mark Stuart’s Charleville cattle station, Mount Morris. The 20,000ha property has been seized over a $2+million debt.
The Stuarts say that the project is eligible for verified credits under the CFI, with income of $400,000 per third year.
Rabobank says the problem with carbon farming is that it ties up farmland for too long, 100 years under government rules. The bank sees the stored carbon in mulga reserves as a liability if the property was to be sold in the future. It does not see the carbon as an asset. “Because they cannot put a value on the changed land management, property agents and bankers use a $0 per hectare value default,” says Michael Kiely, of Carbon Farmers of Australia. “We had  the same experience when we applied to install 50 metre wide tree corridors,” he says. “Even though we had permission graze the areas, the bank admitted that the uncertainty causing the risk was their ignorance of carbon farming and how to value it.
But Queensland graziers Shane and Shan Joyce on “Dukes Plain”, south of Theodore, can put a value on it.. Dukes Plain is a 7900 hectare sub-tropical property of which 3000 hectares is used as grazing land for beef cattle. Areas of natural revegetation with 40% canopy cover are yielding nearly 40% greater return than those areas that were completely cleared. Trees are providing protection to the pastures and soils, allowing for much better growth and increased fodder for the cattle. Water loss through evaporation is better controlled.
The use of trees in agricultural systems can boost nutrient cycling and have positive effects on chemical and physical condition of soils. Trees add organic matter to the soil, in the form of roots or litterfall, or as root exudates in the rhizosphere.[1] These additions are important to a vast range of organisms involved in soil biological activity and have effects on soil nutrients and fertility, according to scientists.

“Bankers and brokers and lawyers and accountants in the regions have got to come to grips with the science and practice of carbon farming,” says Carbon Farmers of Australia‘s Michael Kiely.

To build awareness of the opportunities in the services that will be needed from 1 July 2014, CFA is running The 1st One Million Tonnes is a landscape carbon removal challenge to extract the first million tonnes of legacy load CO2 under the Direct Action CFI Emissions Reduction Fund. It is a Milestone set to kick-start Australia’s journey towards its target to reduce its emissions by 5 per cent compared with 2000 levels by 2020…

What is the Legacy Load?

The cause of the extreme weather events we endure is NOT the Greenhouse Gases everyone is arguing about as they try to curb future emissions. The gases doing all the damage are already in the atmosphere, some released more than 100 years ago.  It is past emissions – your grandfather’s and his father’s emissions – that are causing extreme weather.


[1] Nair, P.K.R., Nair, V.D., Kumar, B.M. & Showalter, J.M. (2010). Carbon sequestration in agroforestry systems. Advances in Agronomy, 108: 237 – 307.                                                                                

Monday, May 19, 2014

Submissions invited on Emissions Reduction Fund draft legislation.

The Australian Government is calling for public submissions on the draft Emissions Reduction Fund legislation. The consultation period will be open until 23 May 2014.
For more information please visit www.environment.gov.au/emissions-reduction-fund or call 1800 852 974.
The Emissions Reduction Fund exposure draft legislation is available at www.environment.gov.au/emissions-reduction-fund.

ERF’s $2.5bn survives Joe Hockey’s Razor Attack

In the Federal Budget the Government confirmed $2.55 billion funding for the Emissions Reduction Fund. A lag in entering into contracts, delivery of abatement and payments will mean the process is slower than anticipated. 

A total of $1.1bn is to be paid in the first four years. 
The $2.55 billion will be paid out over ten years. Market analyst Reputex forecasts “scarcity of ACCUs in the first half of FY15 likely to be particularly acute due to the requirement for the government to develop methods and participants to register projects for new abatement activities.” The scarcity of bidders will mean funding is unlikely to be exhausted in the early years, leaving a large amount of capital available for small and large bidders. “Low supply and low competition for funds may provide an opportunity for early movers to secure higher priced contracts while participation in the ERF is low.” “Current CFI participants - the only current ACCU generators - are expected to take a high bid approach in the ERF's initial rounds . 
”This is expected to inflate ERF prices in early auction rounds, before prices fall in line with growing supply and competition for funds.” 


Aggregate! Aggregate! Aggregate!

The Government wants to streamline the ERF’s processes. It’s reverse auction system will deal in minimum bids of 2000 tonnes CO2-e. The Government believes that few farmers could produce such volumes via soil carbon. But 2000 tonnes of CO2-e extracted from the atmosphere is the equivalent of 550 tonnes carbon in the soil. If we want to be ultra-conservative, we could accept the CSIRO’s upper estimate of 500kg of carbon sequestered per hectare per year.[1][2][3][4] That figure of 500kg translates into 2 tonnes of CO2-e (ie. C x 3.67 = CO2-e).  So an individual farmer could put together a bid with 1,000ha. But 72% of Australian farms are smaller than 500ha. This means most farmers will have to join with others to go the market, by having their offering aggregated or pooled. Aggregators will soon be thick on the ground: NRM groups, farmers groups, trading groups, brokers, suppliers of products and services with client bases, etc. What should you look for in an aggregator? No.1: Knowledge. Have they done any training? (Those who have attended Carbon Farmers of Australia 2-day Workshop have a grounding. Few, if any, seminars conducted (with ‘carbon farming’ in the title) have included any information about carbon markets. 2. Expertise: Have they been part of the Government’s consultation process? Do they have a track record in the field?  3. Attitude:  Do they have a healthy attitude towards market-based solutions to funding delivery of environmental and climate services? 4. Experience: Do they have any clients trading offset units? Have they been engaged for some time in the processes that have led to the market or have they just arrived? 5. Services offered: What services can you access through them? Baseline measurement? Insurance? Auditing? Pool management? Access to voluntary markets? Choose wisely.   

PS, Another way to  assemble 2000 tonnes could be bundling different methodologies for the same property., according to the Department.

PPS, Individual enterprises that can supply 200,000 tonnes can negotiate their own contract timings and conditions, a recognition of the long leadtimes for bespoke projects.
Common Sense Cuts Costs
The cost of measurement of soil contributes a great deal to the impression that the economics of soil carbon is all out of whack. Jeff Baldock has managed to bring the cost down, but not far enough. A major component of the overall cost is the calculation of bulk density. This could be simplified by using a default figure of 1.0. I have spoken to senior scientists who believe that this would more than meet the needs for a discount to balance the risk attached to a default. It could be focused on certain soil types to further reduce the risk, or clay vs sandy soils.

Co-benefits no benefit

One of the Minister’s criteria for including certain units in an auction is  Whether the activity could have adverse social, environmental or economic impacts.” While we agree with assigning a negative value for the ‘side effects’ of an activity, we also believe that there should be some recognition of the positive co-benefits of soil carbon-based units. And taking account of this value in the unit price in the auction system. The budget for the Department of Agriculture’s program that aims to promote sustainable farming could be assigned to be spent as a fixed-price augmentation of the price secured by soil carbon projects. Wherever it comes from, we need to ring the bell for co-benefits.

Make Good No Good?
 “Some business groups saw make-good provisions as a disincentive to participation, others were of the view that make-good provisions would support the underlying objective of the Emissions Reduction Fund.” Surely one of the “underlying objectives” of the ERF is participation. If no proponents submit units for sale, the program has failed and all investment in it has been lost. The Identification of disincentives to participation should be done urgently and addressed immediately.

A question of credibility

At the White Paper Consultation gathering in Sydney on 14th May we were able to put the following “make or break” question to senior departmental officers.. The background to the question is summed up in these 4 points:

1. The Reverse Auction works when a group of sellers bid a price to the buyer who chooses  (usually) the lowest price.
2.The Emissions Reduction Fund reverse auction system is managed by the Clean Energy Regulator (CER).
3. The sellers bid for contracts to deliver emissions avoided or sequestered by a specified date in the future. (Usually 5 years.)
4. The CER can refuse to allow a bid to be made if it decides, among other things, that the estimates of the amount of carbon that will be captured are not “credible”. That is, the rate of increase cannot be referenced in ‘sound science’.
The question: “What information will the Clean Energy Regulator rely upon to decide whether the estimates of soil carbon are credible or not when there is controversy about the data indicating the potential of innovative methods to sequester carbon. Dr Jeff Baldock, who directed the $24m Soil Carbon Research Program- the latest research - described it as a ‘single point in time’ study. As such it cannot be used to make judgements about changes in carbon stocks. As well, it did not address many of the latest innovations in land management. The CSIRO told the recent Senate Inquiry into the ERF that soil carbon’s contribution to meeting the Government’s target will be ‘small’ and ‘modest’. The maximum amount which could be captured under pasture is 0.5 tonnes of carbon per hectare per year, according to scientific reports.  Data gathered on the farms of best practice carbon farmers has detected increases of more than 2 tonnes/ha/yr. Such data is suspect among scientists and often discarded. Such data described as ‘outliers’, rare data points that skew the findings away from the average. But, while this is a legitimate approach when the average is the answer sought, when seeking the potential (or highest possible level achieved) the ‘outlier’ is the answer. Unable to be found on the radar of accepted data, carbon farmers were looking forward to demonstrating the capability to capture and store carbon in soils at rates far higher than ‘small and modest’. But a decision by the CER that a bid lacks credibility because it proposes to increase carbon levels at rates that are not based on ‘sound science’ could be problematic. We recommend that proponents be permitted to take the risk of bidding higher rates of sequestration and manage the situation via “Risk of Reversal” arrangements in the contract.
The ERF White Paper gives the CER flexibility to manage risk via the contract: “Projects will be subject to a range of uncertainties that could affect the timing and amount of emissions reductions delivered. Many are beyond a company’s reasonable control and will be set out in the contract. For example, a project could be affected by natural events such as floods or fires. The contract will enable the Clean Energy Regulator and the business to vary the quantity and schedule for delivery of emissions reductions if the project or measured emissions are affected by these specified circumstances.”
PS. We are investigating the possibility of selling the carbon in excess of that which is contracted in the ERF by packaging it for sale on voluntary markets, here and overseas.

“Boo!” It’s the 100 Year-old boogie-man.
The truth about the 100 Year Rule has a hard job getting through to farmers. Even 25 years is not seen as a concession.  To break through the rusted-on reputation , the Government must drop a  large stone in the pool, ie. do something highly visible to remove the fear of a long contract: extend the ‘risk of reversal’ buffer that currently operates under the Carbon Farming Initiative far enough to cover the proponent completely. The message must be as simple as that used by the Government to “Axe the Tax”. The alternative – relying on private enterprise to take on the responsibility – fails to take account of one very material difference between a private vs a government regulatory solution: The market is saturated with a high level of brand awareness of the characteristic association between “Soil Carbon” and “100 Years. This will not fix itself. The government can fix it by a system whereby every transaction is ‘taxed’ an amount which can cover the farmer’s liability for the entire 100 Year period. The amount taxed can thereafter be returned in increments to the farmer as time passes and the risks are reduced. The Government can sell the system to private enterprise once it has been established and completed its job of removing the barrier to involvement that 100 Years represents.




[1] “In Australia, research has demonstrated that pasture improvement (such as sown pasture or fertiliser application) can lead to significant increases in SOC sequestration (500 kg C/ha/yr, Gifford et al. 1992*) compared to unimproved pasture. Long term trials in Australia have shown that this rate of SOC increase can be maintained for at least 40 years as a result of pasture improvement (Russell and Williams, 1960).”
[2] Gifford, RM, Cheney, NP, Noble, JC, Russel, JS, Wellingtpon, AB and Zammit, C 26 (1992), “Australian land use, primary production of vegetation and carbon pools in relation to atmospheric carbon dioxide concentration”, in Gifford and Barson MM, Australia’s renewable resources, sustainability and global change, pp. 151 – 188, Bureaux of Rural Resources, Bureaus CSIRO, Australia

[3] Russell, JS and Williams, CH (1982). Biochemical interactions of carbon, nitrogen, sulphur and phosphorus in Australian agroecosystems. In: Galbally, IE and Freney, JR (eds) “The Cycling of Carbon, Nitrogen, Sulfur and Phosphorus in Terrestrial and Aquatic Ecosystems”. Australian Academy of Science, Canberra, September 2006, Hunter Water Corporation
[4] K Y Chan, A Cowie, G Kelly, Bhupinderpal Singh, P Slavich, Scoping Paper: Soil Organic Carbon Sequestration Potential for Agriculture in NSW , NSW DPI 2008