Many farmers interested in the CFI are now asking the following questions:
Q. What is happening on 1
July, 2012? What do I have to do?
A. Nothing. On 1 July, 2012
the Clean Energy Future program starts. The top 500 emitters of Greenhouse Gas
will be required to pay a price on the carbon they emit. This will increase
some input costs for farmers as those companies forced to pay the price on
carbon pass on some of the increase to their customers. Eg. power costs.
But the huge increases in
power bills in recent times have nothing to do with the price on carbon because
that won’t start until 1 July, 2012. The dramatic price hikes predicted to be
inflicted by the ‘carbon tax’ were based on worst case scenarios used in the
political campaign against the price on carbon. As well, companies like Fontera have said they would avoid
passing on increased power costs to its farmers. Farmers do not have to pay for
their emissions on farm, despite the fact that Australian Agriculture emits
more than the transport industry.
Instead the plan is that
farmers will be paid to increase the carbon in the landscape and reduce their
emissions of methane from animals and nitrous oxide from fertiliser and other
sources.
Q. How do we get paid to
reduce our emissions?
A. The Carbon Farming
Initiative (CFI) is a government
program that enables farmers to earn carbon credits which they can sell on the
carbon market. The credits can be bought by companies that need to or want to
offset their emissions. This is why they are called an “offset” – they allow
emitters to bridge the gap while they invest in the changes they must make to
be part of a low carbon economy. Offsets earned in Agriculture are known as
“Australian Carbon Credit Units” (ACCUs).
Q. What do we have to do to
earn ACCUs?
A. A wide range of activities
may be used to earn ACCUs. They include reforestation and revegetation and surrender
of permits to clear, reduced methane emissions from livestock - eg., using
tannins as a feed supplement for ruminants, incorporating Eremophila (emu
grass) into feed for ruminant
livestock, and manipulation of gut flora in ruminant livestock - reduced
fertilizer emissions, manure management, reduced emissions of nitrous oxide – including application of urea
inhibitors to manure, application of urea inhibitors to fertiliser - and
increased sequestration of carbon in agricultural soils. The types of projects
that may be permitted include planting native vegetation, restoring drained
wetlands, applying biochar to soil, and flaring methane from livestock manure.
Q. How much can we make from
the CFI?
A. Nobody knows. The
Government has set a fixed price for carbon of $23/tonne for the “Compliance”
market (the market made up of those companies listed in the top 500 emitters).
This will rise by 2.5% each year until 2015 when the price will float. Not all CFI ACCUs will be eligible for
purchase on the Compliance market. Non-Kyoto-compliant CFI ACCUs are restricted
to the “Voluntary” market (the market made up of those companies and
individuals who want to go carbon neutral to reduce emissions) which is
expected to attract lower prices. The Government has put aside $250 million to
buy Voluntary ACCUs to support the market. The prices are hard to predict.
However, ACCUs are bankable, so farmers can wait for the right price before
selling.
Q. Do some activities pay
more than others?
A. Yes. For every tonne of
methane you can avoid emitting (eg., by changing the diet of your cattle or
sheep) you may earn 24 tonne of CO2-e.
For every tonne of nitrous oxide you can avoid emitting (eg., by
changing the method and the amount of fertliser you apply) you may earn close
to 300 tonne of CO2-e. (We are waiting for a Methodology to be approved for both
Greenhouse Gases.)
Q. Why do scientists say soil
carbon can make only a modest contribution to the efforts to reduce Global
Warming?
A. Not all scientists say
that. The world’s leading soil scientist Dr Rattan Lal
believes the world's farmers control the largest installation of a biological
technology (photosynthesis in vegetation across 5 billion hectares worldwide)
that can extract billions of tonnes of carbon from the atmosphere, interrupting
the rapid rise of Global Warming. He says farmers can draw down the equivalent
of 50ppm (parts per million of CO2-e) from the atmosphere for 50 years. It just
so happens that it will take only another 50ppm to the atmosphere before we
reach 450ppm (which will increase Global temperature by 2°C). We need to buy time for low-emissions
renewable energy to reach critical mass. Change land management to turn
agricultural soils and vegetation into a vast global carbon sink. Soil is fully deployed, has critical
mass, and massive capacity. Let’s get on with it.
Q. How do we get started? Who do we talk to?
A. The CFI is in the start-up phase. One by one, the
long list of offset activities is coming on stream as “methodologies” are
written for them. A methodology is a set of rules that enables someone to take
it off the shelf and follow it like a recipe to conduct the activity and earn
offsets in a way that is genuine and reassures buyers that they are getting
what they are paying for. There are only 4 ‘meths’ available at this time:
environmental plantings of native trees would be most relevant to the majority
of farmers; flaring methane from manure ponds in piggeries; managing methane
emissions from landfill; and reducing emissions from savanna burning.
Q. Can we cut out the Middleman?
A. The Government believes that farmers should be able
to manage the process themselves. However, they will need the services of some
third party because offsets are typically sold in bundles of thousands of
tonnes, orders that few landholders will be able to fill. An ‘aggregator’s responsibilities
can include parcelling orders, pool management, registry
maintenance, measurement, trading, and educating. As much as farmers love to
cut out the “Middleman”, direct
trading makes up a small fraction of produce sold. Experience in markets
overseas tells us that landholders will have choice of aggregation services
from their farmers’ association, natural resource management bodies such as
CMAs, suppliers such banks, agents or agronomy services, and dedicated
aggregation services. The role of aggregator is difficult and requires
substantial database management capabilities. Based on overseas experience, the
cost of aggregation, insurances, etc. varied between 10% and 30%. Landholders
will most likely choose to aggregate with the best price/lowest risk provider.
(E., A farmers’ group could choose to form a cooperative to engage an
aggregator.)
Q. Do we have to take land out of production in order
to raise carbon levels in our soils?
A. No. The best process for increasing soil carbon
levels involves active farming. Carbon farming includes all forms of grazing
management, biological and biodynamic farming, composting, pasture cropping,
soil inoculants, etc. And agroforestry and integrated use of trees can have a significant impact on production. Seasoned carbon farmers have discovered that they can plant 20% of their land to trees and maintain production while gaining many benefits, including increased biodiversity, landscape resilience, and lower levels of evaporation.
Q. Will they ask for the money back if we earn credits
for increasing carbon in our soils or trees and subsequently lose it?
A. No. If you lose soil or tree carbon due to bushfire
or drought or any other reason beyond your control, you will not be asked to
pay the money back. The Program automatically puts 5% of the value of every
sale into a ‘buffer account’ – called a Risk of Reversal Buffer – which covers
the losses. You will be expected, however, to restore the carbon levels in
soils or trees for which you had earned ACCUs. If you refuse to restore the
carbon, the Program Regulator can request that you ‘relinquish’ (or hand back)
the ACCUs you were paid in the first place. Your ‘carbon maintenance
obligation’ sounds like a burden, but it means that you simply commit to
continuing the land management practices that had led to the soil carbon levels
previously achieved.
Q. If we plant trees today under the Environmental
Plantings methodology, how soon can we be paid for it?
A. Theoretically, you can be ‘paid’ at the end of the
first year. Practically, you would be likely to wait until there has been
enough carbon captured to make it worthwhile to submit an audit report. You can
claim ACCUs only after a reporting period closes. You can choose the ‘reporting
period’ from 12 months at the minimum or any time up to 5 Years after
commencement of the project. Each subsequent
reporting period begins immediately after the last reporting period.
Q. How long can we expect the income from Environmental
Plantings to continue?
A. The CFI law sets out the length of time that
different activities can generate credits using an approved CFI methodology.
This is known as a ‘crediting period’. Most projects have a 7 year crediting
period. Reforestation will have a 15 year crediting period and native forest
protection projects have a 20 year crediting period. The end of the crediting
period does not mean the end of the project’s earning capacity. Projects can be
approved for a further crediting period so long as the project activity remains
eligible. (This sounds like enough time for someone to shift the goal posts. If
you are signing contracts for a project like this, insist that the factors that
will make activities eligible or ineligible are spelled out in the contract.)
Q. The prices that carbon
credits are fetching now are too low to make it worth my while, according to
many experts. Why should I bother?
A. No one has any knowledge
of how the market for ACCUs will operate. Any opinion about the future is mere
speculation, especially if it is based of misunderstandings. Eg. the price on
international markets has plummeted in Europe for no other reason than the
Global Financial Crisis forced companies with carbon offsets on their books
liquidate these assets for cash flow. The rush to offload units depressed
prices. In the USA the year
before, the Chicago Climate Exchange’s agricultural offsets price collapsed
after President Obama failed to convince his Congress to pass an Emissions
Trading Scheme (ETS) into law. The companies buying CCX units were doing so to
prepare for the ETS which did not arrive. Unlike the USA, Australia is getting
an ETS. The CCX scheme also had
problems with Additionality which the CFI solves. Another ‘fact’ experts quote
is that Voluntary market units inevitably sell for less than Compliance market
units. But, in Europe, voluntary units have sold for close to 10 times the
price of Kyoto compliance units. So you see, speculation is useful only if it
is based on facts, such as: 1. You can ‘bank’ your ACCUs and sit on them until
the market price suits you. 2. No Australian farmer is likely to have enough
sequestered carbon to sell until at least 5 years in to the project’s life. A
lot has happened in the last 5 years and a lot can happen in the next 5 years.
3. Within that period, our major trading partner China has announced that it
will have a nation-wide Carbon Trading system by 2015. It has started a three-year trial in 5 provinces using a
$10/tonne Carbon price.
Q. No farmer I know would
sign a contract for 100 years, especially as many of them are close to
retirement. The experts always mention the 100 years rule as a problem. What do
you say to that?
A. While it is natural to
imagine the worst thing that could happen, the facts are these: 1. Between 2001
and 2005, only 2.5% of Australia’s forests were impacted by wildfire each year.
The odds are 37 to 1 of a fire event. The vast majority of wildfires do not
kill the trees. The CFI requires that dead trees be replanted. 2. The Soil
Carbon Methodology submitted to the Government’s expert panel by the Bridge
Consortium (Carbon Farmers of Australia is a member) offers an ‘self-insurance’/’mutual insurance’-type system that
spreads the risk over pooled and stored units and over a number of farmers
across climate zones. 3. “100 years liability” sounds worse than “100 years of
healthy soils”. But how hard could
it be to continue treating the soil with respect and enjoying the benefits of
soil structure, water efficiency, increased microbiological activity, more
available nutrients, buffering against drought, greater resilience against
disease, etc.? 4. If those "experts" are right and prices of soil carbon offsets never amount to much, your Permanence liability will never amount to much either. 5. 100 Years might seem to be set in stone, but there is no scientific reason for that period. It is not the amount of time in which a molecule of CO2 is held in the atmosphere. The CFI Legislation allows the Minister to set any other period. Carbon Farmers of Australia is seeking to have the 100 Year Principle reconsidered.
Q. Who can I call for
information I can trust about carbon farming and trading?
A. The CFI requires that
the only individuals who can advise you must have a Financial Services Licence
because the Government has defined carbon credits as financial instruments and
any advice about them is financial advice. Carbon Farmers of Australia provides
information of a general nature.
But you should consult your professional adviser for more specific
advice. If your adviser is ignorant of carbon farming and trading you might
invite them to consider attending the Regional Carbon Market Summit on 25th-26th
July, 2012 in Dubbo NSW, which includes workshops for legal and financial advisers as well as
other regional businesses. (www.regionalcarbonsummit.com.au)
(www.carbonfarmersofaustralia.com.au)
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