Helping Growers Make A Decision On Trading Soil Carbon

Recently, when Minister Tony Burke said famously: “ If you’re able to improve the amount of carbon in the soil through sequestration, you get cash." He also said: "Now people can do their own sums as to what sort of deal that would end up being for farmers.” Can they? We believe they can't. That's why we have developed the Soil Carbon Offset Grower’s Risk/Return Calculator.

Soon Australian growers will be faced with a decision: "To Trade Or Not To Trade - and With Whom?". As part of our 'Getting Ready To Trade' workshops* which we have conducted throughout NSW and OLD, we have developed decision-making tools to make it easier to navigate through the confusion. The Soil Carbon Offset Grower’s Risk/Return Calculator enables you to weigh the returns against the risks. You can use this Calculator to analyse any one of the many opportunities offered to you and do your own sums as to what sort of deal that would end up being for you.
PRICE: Price Per Tonne is what we have found most growers focus on. A range of prices have been floated, from $5 to $40. Farmers always favour a higher price per tonne. But is Price Per Tonne the Bottomline? Price Per Tonne can be high, but the Grower can be disadvantaged by: • Low volume per hectare • High middleman costs • High insurance cost • Low protection against C losses • Long contract period. Price Per Tonne can be low and the Grower can be advantaged by: • Higher volume per hectare • Fixed low middleman costs • Low insurance cost • High protection against C losses • Short contract period. So Price Per Tonne should not be the sole decider.
TONES PER HECTARE: All trading systems will need to have an element of estimation* involved, as all carbon trading and all trading systems do. Tonnes Per Hectar allowable will depend on the system adopted by each operation. The Tonneage allowed in an estimation system is likely to be between 2 and 10tCO2(-e) per hectare per year. Tonneage under an accurate measurement system varies with the amount measured. The Grower will have less to trade if only Humus is measured, more if Total Carbon is measured. But the security of humus will attract a higher prince per tonne.
HECTARES ENROLLED: Carbon Farmers of Australia recommend that Growers have their property 'Baselined" and put a toe in water with 150Ha to start.
COST OF LAND MANAGEMENT CHANGE: To be eligible to sell soil carbon offsets, a farmer must be able to demonstrate that these amounts of additional carbon are the result of a change in land management. The Cost of Land Management Change can vary dramatically depending on which technique is chosen. Random costs we have heard include 'wire and water' for grazing management ($40k), installing leaky weirs (Natural Sequence Farming - $5k to $40k), spreading Microbes $7k, Pasture Cropping $3k.
COST OF BASELINING AND MONITORING:
The Cost of Baselining and Monitoring must be low enough to allow trade to proceed but high enough to give buyers confidence. The cost in the only system currently making public its information, Prime Carbon, has been floated at $5.50/ha/yr
MIDDLEMAN COSTS:
Middlemen are a necessary evil. But as the smallest trading unit allowable is far higher than one Grower could supply, farmers will have to be aggregated into pools. So a necessary middleman is an Aggregator. There also needs to be management of the "Buffer Pool", part of a self insurance system which requires Growers to submit additional tonnes to cover losses from fire and drought. A Database of Units must be managed transparently. The Auditor role is important. Both the latter two make buyers confident enough to buy. We need a Broker to make the sale and there is a fee for using the system. The Prime Carbon system caps the middleman costs at 10%. The CCX equivalent is 15% and for many years was 30%.)
DURATION OF CONTRACT:
The Duration of the Contract should be a major consideration. The Kyoto Protocols require contracts for trees to be 100 years or at least 75 years. Such a period would be an unacceptable risk to Growers. But under the New Deal for Agriculture being shepherded through the UNFCCC Copenhagen '09/Mexico City '10 process by the FAO, soil sequestration is expected to draw down the equivalent of 50ppm for 50 years, so 50 years could be considered. Another option is 25 years. The contracts offered by the Chicago Climate Exchange are 5 years renewable and Prime Carbon's period is 5 years non-renewable. These periods do not mean the captured carbon is immediately released. Soil carbon reaches equilibrium and seeks to maintain that new level via its own resources. A Stewardship Payment system would maintain enthusiasm among land managers.)
PERMANENCE LIABILITY: Permanence Liability is a downside risk that can be managed by the Buffer Pool, which is a collective self insurance. The Grower contributes units to be held in trust. The Chicago Climate Exchange (CCX) requires that the Grower submit 1 in 5 tonnes, and Prime Carbon 1 in 2 tonnes.

The Grower needs to give their own weight to each element to make their ultimate decision.



FOOTNOTES:
* Practical Soil Carbon Farming Workshops by Carbon Farmers of Australia. Call (02) 6374 0329 to find out when we will be in your area. (If you have a group of farmers interested in a one- or two-day workshop, we can organise to come to your location.
**An "estimation system" uses indicators such as land management change to estimate volumes of carbon captured and stored, according to modelled data. On the opposite pole is a "direct measurement system" which seeks to detect exactly the amount of carbon captured with a view to trading the maximum amount grown. Versions of a hybrid system are most likely to be adopted for risk management and measurement cost reasons.

Beware the Myths of Trade

"Farmers will be reluctant to lock themselves into any changes in land use or land management, particularly where this involves them taking on liabilities if soil carbon later declines (such as due to prolonged drought)." These words appear in "The Low Carbon Growth Plan for Australia", a report released last week by ClimateWorks Australia. This is a myth repeated by the. Every soil carbon trading system that has existed or is being planned right now involves three fundamentals: 1. Aggregation - the collecting together of growers who individually do not have enough tonneages to sell to deal with the market alone. 2. Buffer Pooling - Growers are required to contribute additional tonnes to act as self-insurance should the worst happen. If an individual's losses are greater than their buffer stock, the collective pool carries them. 3. Limited contract duration - no possibility of 100 years is entertained for soil sequestration. Kyoto doesn't rule.
[The Buffer Pool acts as a 'collective self insurance program' so no Carbon Farmer should stand to lose if drought or fire causes carbon losses.] NB. These concepts are taught as part of the Carbon Farmers of Australia "Practical Carbon Farming Workshop. Call 02 6374 0329 to find out when the workshop will be in your area.

"Potential" to be false and misleading

Industry & Investment NSW (I&I NSW) scientists claim that they have revealed the potential for storing carbon in soil to reduce the impact of climate change. “We have spent three years studying carbon in soils and now have sufficient data available to assess the potential of soil as a carbon sink for mitigating the effects of climate change," says leader of the project, Dr Yin Chan.
Let's get this straight: No attempt has been made to test the 'potential' sequestration capability of Australian soils. And there is no work underway that will reveal it. There is no attempt to study the impact of biological farming on its own and, more to the point, there is no plan to study 'portfolio planning' or combinations of land management practices that complement and reinforce each other to maximise soil C sequestration. This is the reality on the farm. This is what Carbon Farmers do. (Eg. At "Uamby' we use grazing management pasture cropping and probiotic innoculants, on the same piece of ground.) We have developed the Soil Carbon Optimising Tool to help farmers build a carbon farm plan to 'mix and match' their sequestration techniques. So while Science is measuring the potential of the past, we are seeking to live the potential of the present while helping to create the future.
MOTIVATION: Ponder for a moment the meaning behind the act of declaring the limits of the potential of our soils and our management to sequester carbon. It is like telling an Olympic athlete before they compete that they can only run so fast, no faster. Why demotivate the athlete when the goal is higher, further, faster... and our goal is a safer world? Science seems to be constantly in the sideline, urging us to fail. Rarely bringing us ideas to help us achieve more.

The PUSHBACK is ON!

There are many actively lobbying for Tony Burke to reverse his "You Get Cash" announcement, especially the "We'll Ignore Your Emissions" part of the statement. Green groups are outraged: The Climate Institute's Corey Watts (ex-Australian Conservation Foundation) responded to the new deal for Agriculture in disbelief: "Including agricultural offsets by exempting agriculture from any liability for their own emissions and asking other sectors to pay is a situation that can’t last." The Institute has never been a friend to farmers.

A methodology for building a market mechanism for soil C

The following is from a paper we produced in 2008 called Soil Carbon and Measurement: Practical Solutions to Practical Difficulties.

The path to a soil carbon trading system does not appear to lie in the direction of more scientific knowledge alone. Other disciplines must be engaged, as Dr Rattan Lal declared**. Integrated teams of economists, scientists, traders and agronomists must contribute to a solution that meets the needs of the market.

The solution could lie in reframing the question. Instead of asking: “How can we measure soil carbon more accurately?”, we could ask: “How can we measure soil carbon to assure a buyer of offsets that they have achieved their objective?” The answer lies with the buyer’s objective. What are they buying? A tonne of CO2e removed from the atmosphere and stored. Does it matter to them that they are buying an ‘aggregated tonne’ from a large ‘aggregated pool’ of tonnes that have been ‘equalised’ ie., flux is statistically ‘compressed’ (peaks and troughs equalised)? The buyer buys from an aggregated pool of tonnes as part of an aggregated pool of buyers. The significant variations at individual tonne level are eliminated by statistical smoothing.

• This approach was first noted by Sandor and Skees who say that we need not worry about how much carbon is sequestered on an individual paddock, because, while estimates at an individual level may be flawed, the error has ‘typical statistical properties’ and that estimating many individual parcels and aggregating them into a single parcel will improve the estimate significantly. (Sandor, R. L. & Skees, J. 1999. Creating a market for carbon emissions. Choices 3rd Quarter, pp 13-17.)

• A similar note was sounded by the Australian Farm Institute: “if measurement or estimation systems are robust and unbiased… the aggregate result for the combined scheme will be relatively accurate due to the effect of combining many estimates together.” (The New Challenge for Australian Agriculture: How do you muster a paddock of carbon?)

• Wholesale aggregators are already commonly used in carbon markets and the system for aggregation exists. The Australian Greenhouse office already recognizes the benefits of aggregation in forest sinks, called ‘carbon pooling’. Dr Lal also sees the way forward in pooling: “[A protocol to trade C credits] will require development of routinely usable techniques to measure change in soil C pool at landscape level over a time span of 1 to 2 yr.”

• The concept is in tune with the call by Dr John Kimble for a ‘real world’ approach to soil carbon measurement, based on what is known about the behaviour of soil carbon.***

A market-driven solution: Therefore the preferred methodology is to engage buyers, traders and regulators in discussion of MMV issues and enlist their help to develop a workable system. References will be made to analogous uncertainties in other categories of abatement and GHG offset. The engagement strategy includes interviews and workshops with carbon traders, commodity market experts, statisticians, buyers, regulators, and growers. Scientists will be involved where they understand that the objective of the exercise is not precision but practical solutions. By revealing to the stakeholders the elements of systems for assessing soil C levels and their uncertainty levels, as well as the potential for using combinations of techniques, the stakeholders can gain an understanding and give considered opinions about degrees of confidence.

** “In cooperation with economists, soil scientists must develop a protocol to trade C credits.” Dr Rattan Lal, “Soil Science and the Carbon Civilisation”, Soil Science Society of America Journal, 71 (3), Sept-Oct 2007. Dr Lal is Director, Carbon Management and Sequestration Center, Ohio State University, Columbus, Ohio; Professor of Soil Science, College of Food, Agricultural, and Environmental Sciences, School of Natural Resources, Ohio State University; Liebig Applied Soil Science Award,
World Congress of Soil Science 2006; President, Soil Science Society of America.
*** Dr John Kimble: "It is often pointed out that soils have a large amount of variability, but with knowledge of soil sciences and landscapes, variability can be described and sampling protocols can be developed to deal with this," writes Dr John Kimble.47 "One reason I feel people say that soils vary and SOC cannot be measured is that we soil scientists focus on showing variability, not on showing what we know about the variability.” Dr Kimble recently retired from the US Department of Agriculture, National Resources Conservation Service, National Soil Survey Centre, Lincoln, Nebraska. "We too often focus on this [variability], worry about laboratory precision and field variation and do not look at the real world where most things are based on averages and estimated data. We tend to focus on finding variation and not on using our knowledge of soil science to describe what we know. All systems vary, but in soils we focus on a level of precision and accuracy that may not have any relevance to the real world because we can take so many samples and look at the variation." Kimble, J., "Advances In Models To Measure Soil Carbon: Can Soil Carbon Really Be Measured?", in Lal, R., Cerri, C., Bernoux, M., Etchevers, J., and Cerri, E., eds., Carbon Sequestration in Soils in Latin America, Food Products Press, Birmingham, NY, 2006

Does Science hold all the answers?

One of the essential features of scientific method is "repeatability" - which means that a scientist can repeat an experiment and get the same result. This result is called 'scientific knowledge', said to be the most reliable form of knowledge. But soil carbon seems to exclude itself from "scientific' status because it can't be repeated. It won't stay still. Dr Chan et al., in "A Farmer's Guide..." reported that soil organic carbon levels in a 40m x 40m area varied between 2.72% and 1.44%. A total of 20 soil samples were taken to 5cm deep*. This phenomenon is called "Spatial Variation" and it means trouble for pure science. The researchers say this 'large field variability tends to mask any small real difference in SOC due to management practice...' They go on to say this mask could be the reason why they couldn't detect differences between management techniques.

Could it be that it is time to call in the actuaries? We have a dataset. Actuaries can see patterns in data others can't.
Could it be time to call in the market economists, the innovators and inventors?

It is natural for scientists to believe that highest possible degrees of accuracy in measurement are needed for trading. Indeed, to believe trade could not take place without it. In fact, the opposite is the case. We are faced with finding an acceptable way to "generalise" the data.

* Chan, YN, Oates, A., Lui, DL., Li, GD., Prangnell, R., Poile, G., and Conyers, MK. (2010). "A farmer's guide to increasing soil organic carbon under pastures", NSW Industry & Investment, Wagga Wagga, NSW

The gap widens between science and farm ?

WE HAVE A PROBLEM CALLED SCIENCE: When a highly respected scientist such as Dr YN Chan produces a report* which says we can't sequester carbon except by using traditional fertiliser, science has a problem. Farmers who are growing carbon in their soils know these results are wrong. Scientists we speak to are surprised at the results. But Science has never been able to justify any land management approach that it did not originate: eg. planned grazing or pasture cropping or zero tillage. To find for the petrochemical companies and against grass-roots-developed natural systems has caused some cynical remarks.

GAP GROWING WIDER: More than a decade ago a soil scientist declared that the gap between science and farmers was widening. Professor Ben Norton identified this 'impasse' between graziers and researchers in the McClymont Lecture** in 1998: "The results of grazing trials have been counter-intuitive... Based on scientific research, [we] can only recommend continuous grazing and reduced stocking rates..." [to increase pasture biomass]. Science, based on 'hundreds of studies' concluded that planned grazing is not cost effective. This would be embarrassing if one study reported it, but the entire research community? Professor Norton*** observed that "graziers are looking elsewhere for advice". How many graziers today use some form of stock movement to manage their pasture? The emergence of farmer groups to drive their own research agendas and control their own destinies has paralleled the rise in biological agriculture.

HANDY LITTLE BOOK: The report on soil carbon and fertiliser is published in the form of a handy little book which has quite useful information: ie. the basics about measuring and calculating amounts, how they take samples, etc. There is a stunning ilustration of the way soil carbon levels vary across a field. All useful stuff. (Given the propaganda surrounding the release of the topline results several months ago, this book should be seen in the context of that desperate campaign by DII to discredit and disprove the potential for soil carbon. They admit it: "There is a need for farmers to be better informed of the facts about soil carbon in agriculture so they can make sense of the many but often confusing claims appearing in the media." The claims appearing in this booklet are confusing as well. (Out of confusion comes knowledge.)

FOOTNOTES:
* Chan, YN, Oates, A., Lui, DL., Li, GD., Prangnell, R., Poile, G., and Conyers, MK. (2010). "A farmer's guide to increasing soil organic carbon under pastures", NSW Industry & Investment, Wagga Wagga, NSW
**Norton, BE., "The application of grazing management to increase sustainable livestock production," Animal Production In Australia, Vol. 22 1998.
*** Ben Norton was a Professor in the Department of Rangeland Resources at Utah State University.

Are you part of the Problem? Or part of the Solution?

Are you part of the Problem? Or part of the Solution? How can you tell? If you find yourself always ‘playing Devil’s Advocate’ when some new plan is presented, you’re part of the problem. If you believe that observing the rules is more important than achieving a breakthough, you are part of the problem. If you have achieved high office under the current system, you are likely to be part of the problem. If you find yourself saying “that can’t be done”, you are part of the problem. If you find yourself saying “but it must be this way’”, you’re part of the problem. If you feel you don’t get enough respect, you are probably part of the problem. And if you feel something bad will happen if we deviate from protocols and procedures, you are part of the problem. But if you can free yourself from the past long enough to imagine the future, a future in which there is solution to the insoluable, you are part of the Solution.

ACCC proves ‘false and misleading’ easy

The Carbon Coalition says the recent action against Ken Bellamy and Prime Carbon by the Australian Competition and Consumer Commission (ACCC) was as much about sending the Soil Carbon Offsets Industry a message as it was about Mr Bellamy’s actions. Consumer affairs watchdog Chairman Graeme Samuels is eager to get involved in this field: “The ACCC is closely monitoring this industry… We’ve put on notice anyone else who is in this business.”
The industry welcomes the ACCC’s attention at this early stage of its formation, says Michael Kiely, Convenor of the Carbon Coalition. “In every new industry there is no path to follow,” he says. “It’s easy to make mistakes when everything is so new. Few understand soil carbon issues and even bodies such as the ACCC and the ABC can make mistakes with the wording of public statements about it.”
ABC Rural Radio reported on NSW Country Hour on Friday 12th, 2010 that the Federal Court found Mr Bellamy had made false statements about ‘the environmental benefits of its products’ when in fact the Court made no mention of them. “The ABC Country Hour had no intention to make a misleading statement, but the complexity of the soil carbon issue tripped them up,” says Michael Kiely.
The ACCC itself made a wrong statement in the headline of its press release announcing its victory over Prime Carbon. It wrote: “Company admits misleading consumers about marketing carbon credits”. There were no consumers involved in the Prime Carbon transactions. The buyers are major corporate emitters. The farmers growing the soil carbon to create the offsets are suppliers, or sellers.
The ACCC also demonstrated how easily a misleading impression can be made by what it fails to say: The main crime alleged against Prime Carbon was that it claimed ‘that it was registered as a broker and an aggregator with the National Stock Exchange’. This statement on its own is very serious. But when you include the rest of the story - that Prime Carbon ‘was and is registered as a broker and aggregator with the National Environment Register (a subsidiary of the National Stock Exchange (NSX Limited)’ - the seriousness of the offense is plain to see.
Some have accused the ACCC of trivialising the soil carbon industry by pursuing one of its members for confusing the names of third parties in brochures several years ago. They question the timing of the action, with the Government's voluntary carbon market standard about to be announced. The Coalition, however, welcomes the Commission’s timely reminder to all members of the industry. A charge of ‘greenwashing’ can be easy to make and hard to defend, especially when outsiders cannot understand the industry. “We have to educate the public and their officials about what we stand for. We are not primarily a consumer market operation,” says Michael Kiely. Soil carbon is an agricultural commodity.
Mr Samuel said he would be on the look out for “unsubstantiated claims.” The Soil Carbon Offsets Industry is a hornet’s nest of ‘unsubstantiated claims’. "The lack of Australian research and the conflicting versions being presented to farmers make for a healthy debate,” says Mr Kiely. “We believe – where Climate Change is at issue – the world should use the Precautionary Principle: “where there are threats of serious or irreversible damage, lack of full scientific certainty should not be used as a reason for postponing such measures”.’ (A GUIDE TO THE CLIMATE CHANGE CONVENTION AND ITS KYOTO PROTOCOL, UNFCCC, Bonn, 2002)
The Carbon Coalition supports Ken Bellamy as a member and as a technical leader. “He is motivated by a sense of urgency about Climate Change. His brinksmanship and risk-taking led him to rush ahead of the rest – and as a result he is closest to providing the market with a workable trading model,” says Michael Kiely. “For this reason the Carbon Coalition endorses Ken Bellamy’s unorthodox methods. The ends can justify the means, when the end represents the only hope we have to slow Climate Change long enough to make the transition to alternative energy.”

The Urgency of Prime Carbon’s Work

Scientists have now agreed that it is too late to avert the damaging impact of Climate Change. The globe is on track to an average increase in temperature of more than 2°C.(1) The Carbon in the Atmosphere is the load arising from 100 years of emissions. There is only one way to reduce this load: by drawing down the CO2 via the process of photosynthesis, the only process known to sequester atmospheric CO2. Agricultural soils and vegetation can draw down the equivalent of 50ppm of atmospheric CO2 for 50 years.(2)
Farmers manage 5 billion hectares of agricultural land around the world. The success of this project depends upon their willingness to change from Greenhouse Gas emitting land management practices to techniques that expand the capacity of photosynthesis to draw down the excess emissions. The market for soil carbon offsets – the field in which Prime Carbon operates – is the source of the funds to reward farmers for making this change. The Australian Government has started the search for a workable trading model. The process of the draw down cannot start without it.
Many companies and innovators have attempted to formulate a model. Ken Bellamy’s Prime Carbon is the closest to achieving that goal that we know of. There is no other apparent at this stage. “But if there were, the Coalition would be supporting them as well,” says Mr Kiely. The Mission of the Carbon Coalition is: “To see soil carbon offsets traded and farmers paid fairly for what they grow.”
The rapid increase of extreme climate events increases the urgency of the mission. The Australian Government has set a date of 1 July 2010 for the market in soil carbon offsets to commence.(3) It cannot start until we have a workable model.
“Ken Bellamy has been a leader in that search, at great personal expense. He is not a scientist. He is an inventor. A practical innovator,” says Michael Kiely. “That doesn't put anyone above the law.”

FOOTNOTES

1. “The science now tells us that it will be next to impossible for nations to achieve the scale of reductions required in sufficient time to avoid dangerous climate change unless we also remove carbon from the atmosphere and store it in vegetation and soils…The power of terrestrial carbon to contribute to the climate change solution is profound.”- “Optimising Carbon in the Australian Landscape” - Wentworth Group of Concerned Scientists, October 2009

2. ‘The technical potential of carbon sequestration in world soils may be 2 billion to 3 billion mt per year for the next 50 years. Thus, the potential of carbon sequestration in soils and vegetation together is equivalent to a draw-down of about 50 parts per million of atmospheric CO2 by 2100.’ - Rattan Lal (lal.1@osu.edu) is Director of the Ohio State University’s Carbon Management and Sequestration Center and Professor of Soil Science in the School of Environment and Natural Resources.

3.http://www.climatechange.gov.au/government/initiatives/carbon-offset.aspx “The National Carbon Offset Standard provides Australian businesses, particularly farmers, with the opportunity to develop offset credits for voluntary carbon markets. These opportunities include offsets from increased soil carbon and from other land-based emissions sources.”

"You get CASH!" Minister Burke"You get cash!" Burke pledges soil carbon credits

The Minister Tony Burke spoke plain English at the ABARE Conference this week - admitting his Government had failed in telling farmers about the change in policy in November 2009. "If you’re able to improve the amount of carbon in the soil through sequestration, you get cash." Don't punish yourself, Tony. More than half the population out here has stopped listening to politicians and scientists with degrees in anything approximating climate studies.


"How does all of this come back to the farmer? ...what it actually means for someone on their own property. Inputs – fertiliser price, chemical price, unchanged. Fuel price goes up, fully offset by a relay. Electricity prices do go up. And there’s a direct line of money to help people with the cash to be able to move to lower energy use for their electricity with a particular focus on meat process, dairy and malt.... For emissions Agriculture [is one of] the only sections of the Australian economy where we ignore the emissions, ignore them completely. Even if they go up, we ignore them. The only section of the Australian economy where it did that.

"But if you’re able to reduce your emissions through abatement, you get cash.

"If you’re able to improve the amount of carbon in the soil through sequestration, you get cash.

"Now people can do their own sums as to what sort of deal that would end up being for farmers. But simply inputs roughly the same, cost of emissions completely ignored, opportunities for new lines of income created. That is the legislation in its final form."