Monday, April 30, 2007

The markets for soil carbon

There have emerged 2 distinct markets for soil carbon in Australia:

1. The Mandatory Corporate Market - companies purchase to offset their emissions in order to meet a mandatory cap, such as is imposed by the Kyoto Protocol or a scheme such as the Greenhouse Gas Abatement Scheme in NSW. As a commodity market, it doesn't matter to the purchaser where the offsets originate.
2. The Voluntary Market - individuals, governments, NGOs and corporations who purchase for reasons other than meeting mandatory targets, such as combating climate change, encouraging environmentally-friendly behaviour, assisting third world communities, etc. The action is defined as voluntary so long as the credits will not be used to meet a regulatory target. They are purchasing a branded product, packaged and bundled with more attributes than simply being a commodity carbon credit. The action is defined as voluntary so long as the credits will not be used to meet a regulatory target.

There are two more dimensions in the market:

1. The wholesale market:large volumes of offsets made available by operators who can demonstrate that they have prevented emissions by developing renewable energy projects or who can demonstrate that they have 'sequestered' CO2.
2. The retail market: companies and organisations that invest in offset projects and then sell off portions of the emission reductions in relatively small quantities with a mark-up.

Mandatory purchasers can choose a particular type of wholesale offsets (eg. foregone vegetation clearing) for image reasons. Eg. coal miners and power generation companies are known to favour environmental projects.

The image/"meaning behind the source"/emotional content of an offset - such as a solar energy project in a underdeveloped country - can add make it more valuable to the buyer. By 'bundling' benefits into the offset package, promoters can create what is called 'gourmet' carbon. Naturally these offsets can command a higher price.

The retail market is currently quite small, but is growing rapidly. Several service providers have reported a doubling of sales each year for the past two years.

Standards, protocols, and verification methods used to regulate mainstream carbon
offsets include:

1. CDM/JI Standard – set by international regulatory authorities
2. The Gold Standard – created by consortium of NGOs for energy projects
3. The Climate, Community, and Biodiversity (CCB) Standards – created by
consortium of NGOs and private sector for land-based sinks projects
4. Self developed standards – created by individual providers

The majority of retail providers adopt self developed standards and
verification procedures, rather than following the CDM and Gold Standard guidelines.
Voluntary markets are largely unregulated. 'Voluntary markets can maintain environmental integrity without the precise quantification, unambiguous ownership requirements, and in-depth M&V protocols required of compliance markets," says Dr. Mark Trexler whom we met in Washington last October. "The voluntary market has the flexibility to encourage innovation. It may be able to provide the most benefit to small-scale projects and technologies that the regulatory market tends to overlook (either because the projects fail to meet a required threshold or because they are too small to bear the high transaction costs often associated with regulatory offsets)," he says. Dr Trexler is the president of Trexler Climate + Energy Services, Inc., an energy and environmental policy consulting firm based in Portland, Oregon.

Prices vary enormously, from US$5 - US$35 or more per tCO2e. Brokers generally charge a 7.5% commission. Websites generally have a carbon calculator, where individuals can calculate emissions from flying, driving their cars, or their total yearly emissions.

"Sustainable development benefits of projects on offer from retail providers vary from projects with little benefits to local communities, to projects in which communities are key participants, to projects that address biodiversity and communities," says Nadaa Taiyab of the International Institute for Environment and Development. The majority of retailers appear to focus on forestry projects.
"Buyers if voluntary offsets are not buying a ‘product’ so much as they are giving to a cause. The calculation of carbon emissions is simply a way of defining the size of their contribution," she says. They are paying for a service: not just the offset, but also access, convenience, and quality assurance.

Carbon Farmers of Australia is operating firmly in the voluntary market, selling gourmet carbon.


√ The first voluntary transaction occurred in 1989 when US power company AES Corp. invested in agroforestry projects in Guatemala.
√ The start-up capital needed to register a project for the mandatory compliance carbon market can be beyond many projects. Voluntary projects avoid these bottlenecks.
√ The market for voluntary offsets is estimated to have doubled between 2006 and 2007 to 100 million tonnes.

(See Bayon, R., Hawn, A., Hamilton, K., "Voluntary Carbon Markets", Earthscan, 2007)

Friday, April 06, 2007

NFF comes up trumps on trading

The National Farmers' Federation has come out against a carbon tax and in favour of soil carbon credits.

In a submission to the Prime Minister's taskforce on emissions trading, president David Crombie said the NFF favoured a national emissions trading scheme. Farming had the potential to sequester emissions, he said. Carbon sequestration could be done through management of livestock, fertilisers, vegetation and soil.
Mr Crombie also opposed a carbon tax. Any additional impost on farm inputs and outputs would increase production costs and make agriculture less competitive in overseas markets, he said.

Mr Crombie pinged the Prime Minister for his boasting claim that Australia would meet its Kyoto obligations.** The NFF said farmers' efforts in curbing land clearing had enabled Australia to largely meet its commitments under the Kyoto Protocol. He said that these emission cuts were valued at $500 million* but the cost had been borne by farmers — an "enormous inequity", he said. Farmers also planted 20 million trees each year. Any policy should provide "full recognition of this annual contribution by the farm sector", he said.

The NFF also took aim at 'forests' or tree plantations. Mr Crombie said limits should be placed on carbon offsets for large-scale tree plantations in high rainfall areas. Any developments should be subject to full planning consent, including water impacts, he said.

*Carbon trading industry sources have valued the foregone clearing at $1.8billion.

**This is not true. Demand for energy has pushed Australia well past its target emission limit which itself was set very favourably by the Kyoto negotiators seeking to get Australia to support the scheme.

Sunday, April 01, 2007

Carrying the flame to Grafton far away

Louisa and I got back late yesterday after travelling 10hours by road (with an hour stop in Armidale to watch the Autumn Festival Parade and an hour in Tamworth to buy groceries). We had attended the most invigorating Landcare Farming Forum, put on by the Northern Rivers Catchment Management Authority and Landcare. We spoke on the topic "Future trading in soil carbon" and attracted a fair crowd, given there were 3 other streams going on, one of them featuring Allan Yeomans whose book Priority One is os justly famous. The highlight of the event was the key note speaker Dr John Williams, Commissioner of Natural Resources in NSW. He spelled out in simple terms the links between man and nature, and at one stage I heard him say the words, that setting the planet to rights is a journey that starts in the hearts and minds of the each one of us. Profound words.
John WIlliams, Commissioner for Natural Resources met Coalition member Craig Carter who had delivered a paper on Natural Sequence Farming. Craig's weirs leak.Dr Williams was chief of CSIRO Land and Water until 2004. Later that day, during a panel session, he said that my contention that soil carbon is hard to measure was not right. It is easy to measure for trading. I should have added the words "economically". But it was heartening to hear the Commissioner make an empassioned plea for farmers to be rewarded for storing soil carbon. Another highlight was hearing Gary Zimmer, a biological farmer from Winsconsin, USA. Gary is an educator and consultant and farmer. He says he doesn't expect you to remember much of what he has to say. He just wants to "spark" you up to want to learn more, and this he does. Gary speaks at the speed of sound - some of his words leave his mouth so quickly they reach you ears well before words he said before them do... if you get my drift. He is full bottle on soil chemistry, and how. Gary Zimmer has the gift of the gab and great information to go with it.

But he's not just all left brain. He has that special right brain intuition that few others have - Christine Jones is one - of just feeling that a farm is in synch or not, no matter how good or bad it appears. His was a special session and he is a special man. Other highlights for me were Cam McKellar's presentation on his biological farm near SPring Ridge. (I've asked Cam for one of his photos.) And Dr Lukas van Zweiten who prefaced his presentation on biochar with the immortal pronouncement that Australian soils are too buggered (my words, not his) to store much carbon (hence we must buy char) which raised my hackles, but we chatted later and he promised to send me some information. The New England looks a picture and we yearn for it still (we met in Armidale and lived there for several years). There's plenty of soils carbon growing under the pastures northeast of Armidale, I'll bet.
It was great to see Sally Wright in action. Every CMA should be trying to poach her.