Wednesday, April 25, 2012

Top 15 Questions about the Carbon Farming Initiative

 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 aggregators 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. (


Friday, April 13, 2012

The Race Is On For Big Ideas

You'd better get your skates on to be in the race for grants of $50k-$200k towards the development of CFI methodologies - the Government is in a hurry to fertilise the field of opportunity. They want to start giving the money away on 1st July, 2012. After a public consultancy period until 4 May, 2012, you will have a month to get your submission in. The CFI Methodology Development Program (MDP) has taken a $19.6 million slice from the Carbon Farming Futures package to fund the development of CFI methodologies. Approximately $7.2 million of the MDP fund has been allocated to the preparation of methodologies by government research agencies through collaborative grants projects.
The Department says: "The objective of the MDP is to expand the opportunities for land managers under the CFI through the development of methodologies that meet CFI requirements." It is clear that there were too few 'meths' rolling off the production line. A good number of individuals/organisations can now be funded - between 60 and 240, depending on how much each 'winner' gets. The amount might be limiting in many cases. The following table reveals the size of the opportunity:

Key points of the Departmental press release about the MDP draft guidelines:

Big ideas: "Innovative ideas are encouraged, combined with a sound technical approach to project development."

Big Science: "Where [the Department of Climate Change and Energy Efficiency (the Department)] undertakes methodology development, it works in collaboration with the scientific community, practitioners and relevant organisations to ensure methodologies are robust, underpinned by appropriate research, and are supported by industry. Successful applicants under the MDP will also be required to work in collaboration with relevant stakeholders in the methodology."

Big partners: "The department is seeking applications from suitable organisations and individuals to prepare CFI methodologies in collaboration with the Department and relevant stakeholders." [It would be useful to know at this stage what makes an organisation or individual 'unsuitable'?]

Big hurdles: "The program will... support... methodology development projects that have the following characteristics.
1. The project involves a methodology that has potential for application across an region or industry because the abatement activity or activities:
* have significant abatement potential
* are cost effective and easily adopted, and/or
* have co-benefits for agricultural productivity, biodiversity or natural resource management.
2. the proposed methodology has the potential to be approved under the CFI
* the abatement activity is covered by the CFI, and on the Positive list or likely to be assessed as beyond common practice
* there is a coherent methodological approach, including an accurate and realistic baseline scenario, a defined abatement activity or change in management practice, a clearly defined project boundary and a rigorous approach to emissions estimation
* the proposed methodological approach is likely to meet the CFI integrity standards and is supported by peer reviewed science. 3. the project team has demonstrated technical capability to carry out the project
* there is a budget for the project that includes cash and/or in-kind contributions by the applicant
* there is a well structured draft work program that covers the development of the methodology through to its final assessment by the Domestic Offsets Integrity Committee.

Big race: "Not all projects that meet these program objectives will receive funding."

Big scoreboard: "The following indicators will be used to measure the success of the Methodology Development Program:
* the number of methodologies approved for use under the CFI that have received support through this program
* the number of regions and industries where these methodologies are applicable
* the number of projects implemented using these methodologies and the resulting abatement. [This is the only one that matters. The number of farmers engaged, the degree of behaviour change and the results.]

Big opportunity; 'To be eligible for funding under this program the applicant must be one of the following legal entities based in Australia or, ideally, a consortium of such entities:
* industry representative groups and associations
* individuals supported by technical experts
* companies with an Australian company number
* natural resource management groups at the local, regional and national level
* research organisations
* Australian tertiary institutions.'"

Big process: "Applications for funding will be reviewed by assessors comprised of staff from the Australian Government (which may include staff from Commonwealth agencies other than the department), and non-government technical experts.... The assessment panel will consider:
* value for money, including the value that the applicant provides through in-kind contributions and industry experience and the likelihood that the applicant can successfully execute the work plan
* comparative value; that is, how the application compares to others in meeting the program objectives
* whether the application is comprehensive, logical and clear.
Applicants who demonstrate financial stability and a record of delivering projects of a similar nature will be viewed favourably in the selection process."

"The department will enter into funding agreements with successful applicants and negotiate the final work plan for the project. ... Successful applicants will be required to enter into a legally binding funding agreement with the Commonwealth. The department reserves the right to change these conditions or apply different conditions to a particular project. The department may propose changes to the project proposed during negotiation of the funding agreement, to increase the likelihood that the project will achieve the program objectives.

"The department may request progress meetings and audio conferences with appropriate notice, during the methodology development process.
Some say the Government could have achieved the same result it is seeking with the MDF by using the technique employed by the largest regulator of offsets in the voluntary market - Verified Carbon Standard. VCS channels royalties to methodology developers from other users of the methodology. A simple market-based solution. We say: "Well Done, Minister."

*TWF -Technical Working Group - a group of government and non-government experts with specialised knowledge in the specific field.

Friday, April 06, 2012

Is 100 Years of Healthy Soils too much?

So what’s the big deal about being paid to stop flogging the land for 100 years? It has taken us only 234 years to lose half of the top soil that we rely upon to feed ourselves. We are still losing it at 5 times the rate of replacement. How hard can it be to stop hammering the source of your children’s and grandchildren’s food?
Why is 100 years of doing the right thing for soils such a scary thought? There is not a single soil scientist who doesn’t agree that increasing soil carbon is a good thing for the farm, the landscape and the nation. Soil carbon sequestration is not a silver bullet. It’s a no-brainer.
It stops erosion. It buffers against drought. It restores fertility. It builds biodiversity. And it fights Climate Change. The carbon that the soil needs is taken out of the Atmosphere where it is doing damage. Farmers command the only technology that can convert Greenhouse Gas into soil and food: photosynthesis. It’s easy to capture CO2 because we do it all the time for a living, growing grass and grain, bushes and trees. But don''t some people tell us our soils are slow to put on carbon? Yes, but highly skilled carbon farmers have shown that they can sequester carbon 10 times faster than non-farmers. The farmers practice every day.
But don’t the experts say that we lose carbon as fast as we take it in? Yes, they do say that, but we know that carbon can be trapped safely in soil humus for 1,000 years or more. And humus can make up 80% of carbon in the soil.
But isn’t it risky? Don’t they ask you to give the carbon credits back if you lose soil carbon because of drought or fire? No, they don’t. You just have to build it up again, by doing what you did to get it in the first place: treating the soil with respect. (You have the option to 'relinquish' the units you earned.)
There are some people who don’t want farmers to be paid to do this. They want them to do it for free. The Carbon Farming Initiative is the first opportunity for farmers to be paid the true cost of agricultural production instead of being expected to work to protect the environment on behalf of the community for nothing. Simply putting a dollar figure on soil speaks volumes.
To start A Century of Healthy Soils, we need to make it easy for farmers to get involved. Right now, with the CFI legislation the way it is, it’s like trying to bring down the road toll by fitting cars with square wheels. It works. You’ll also solve the traffic problem. There won’t be any.
There are ways to achieve Permanence without scaring the farmers: insurance, buffering or carbon pooling. Spreading the risk is reducing the risk. Our “Soil Carbon Methodology” uses buffering and pooling – a type of self insurance. It removes the danger without risking the result.
Instead of scaring farmers off by making the risks seem worse than they truly are, we should be recruiting them with a vision of how good life can be when your soils are rich with carbon.
So next time you hear someone reciting a long list of negatives about the prospects of being paid to increase soil carbon, ask them: “Is 100 Years of Healthy Soils too much?”

*Carbon Farmers of Australia is a not-for-profit company.
* MIchael Kiely is a Director of Healthy Soils Australia.

The material in this blog is made available for general information only and on the understanding that Carbon Farmers of Australia is not providing advice. Readers should familiarise themselves with the Carbon Farming Initiative (CFI) and obtain professional advice suitable to their particular circumstances. While reasonable efforts have been made to ensure the accuracy, correctness and reliability of this publication, Carbon Farmers of Australia and all persons acting for Carbon Farmers of Australia preparing this publication accept no liability for the accuracy of or inferences from the material contained in this publication, and expressly disclaim liability for any person’s loss arising directly or indirectly from the use of, inferences drawn, deductions made, or acts done in reliance on this publication.

How common is common practice?

Clare writes: “I was under the impression that additonality only kicks in if the whole industry has a 5% adoption rate, not if a district does? Where is this written? I can't find reference to 5% anywhere on the Govt's website or material.”
Thank you for your question.
A reference to 5% can be found in the "Positive List Guidelines Common Practice". The text reads: " For the relevant comparison group: The adoption rate for the activity is estimated to be less than 5% because
- data indicates that this is the case;
- the activity is dependent on a new technology;
- there is at least one significant impediment to adoption; or
the activity penetration has not yet reached the take-off point for that activity.”
The Guidelines also contain the following: "For example, a particular activity might be common among southern beef producers, but uncommon among beef producers in the north of Australia. For example, the restoration of wetlands may be common in national parks, but uncommon on land under other management regimes. The comparison group can also be thought of as the people subject to the same factors influencing whether they adopt an activity, or who share common barriers t]]o uptake of an activity. The relevant comparison group could comprise all participants in an industry, subsector or a region."
The words below come from the CFI Regulations Explanatory Statement. The last word is 'environments'. It is use]d in the following context: "The positive list identifies activities that are not considered to be common practice within relevant industries or environments." The concept of 'environment' in context of adoption of management practices by farmers could refer to the geographic locations through which the practice spreads by 'over the fence' observation, eg no-till penetration is highest in WA, next highest in SA, and so on. The concept of the 'diffusion of innovation' applies across industries and districts (subset of region). The word 'environments' is possibly used by the writer of the Explanatory Statement to allow for any other subset of 'farmers' which the Government may identify in future.
As for 5%, there has been talk of extending it to 30% in some cases. Perhaps the most important element of the Common Practice Principle is that the impact of the CFI will taken into account. In accordance with the CFI legislation, the Minister must factor out the impact of the scheme when assessing whether an activity is common practice .This might be just as well because there could be an issue with the model of adoption chosen for the CFI. It has to do with the 'take-up rate' and the 'take-off point'. "The take-up rate is the percentage of landholders in the comparison group who are currently undertaking the activity. It is sometimes called the 'adoption rate'. The uptake of a technology or practice is generally slow during the invention and innovation phase. The activity penetration rate increases until the take-off point is reached indicating that there are no significant barriers to the adoption of the activity and that the activity will become common practice." But it cannot be assumed that farmers will adopt new ways of farming at the same rate after the incentive of CFI offsets is removed. The take up rate prior to the activity reaching take off point will be driven by the financial incentive (otherwise the farmer would have already adopted it). The adoption rate could slow once the activity comes off the Positive List, especially among those who have no natural inclination to adopt the new.
The concept of Adoption Rate first appeared in 1943, researchers from Iowa State College plotted farmers adoption of a new hybrid corn seed. The bell curve they observed has since become known as the classic adoption curve for new ideas, practices, products and services. The process of adoption over time follows a classical normal distribution or "bell curve." The first group of people to change is called "innovators," followed by "early adopters." Next come the early and late majority, and the last group are called "laggards." The demographic and psychological (or "psychographic") profiles of each adoption group are:
* innovators - had larger farms, were more educated, more prosperous and more risk-oriented. (Added to this could be, in the case of the CFI, conservation-oriented farmers.)
* early adopters - younger, more educated, tended to be community leaders
* early majority - more conservative but open to new ideas, active in community and influence to neighbours
* late majority - older, less educated, fairly conservative and less socially active
* laggards - very conservative, smalls farms and capital, oldest and least educated.
The world expert on take up rates and adoption curves is Geoffrey Moore who wrote Crossing the Chasm in 1991 and set the standard. Moore identifies a chasm between the early adopters (enthusiasts and visionaries) and the early majority (the pragmatists). This is the chasm and it is right at this point the 5% line is crossed. The withdrawal from the Positive List could depress take up of the activity by the farmers who are least likely to adopt without financial incentive. Again the Minister will factor out the effect of the CFI. That should solve a lot of issues.

The material in this blog is made available for general information only and on the understanding that Carbon Farmers of Australia is not providing advice. Readers should familiarise themselves with the Carbon Farming Initiative (CFI) and obtain professional advice suitable to their particular circumstances. While reasonable efforts have been made to ensure the accuracy, correctness and reliability of this publication, Carbon Farmers of Australia and all persons acting for Carbon Farmers of Australia preparing this publication accept no liability for the accuracy of or inferences from the material contained in this publication, and expressly disclaim liability for any person’s loss arising directly or indirectly from the use of, inferences drawn, deductions made, or acts done in reliance on this publication.