Monday, September 02, 2013

Soil Carbon Bank gets the nod

We think we have got the 100 Year issue almost licked. Our concept of a Soil Carbon Trust that enables farmers to self insure against the downsides of sequestration has been given an approving nod from highly placed public officials and actuarial experts.

Late last year, the Department of Industry, Innovation, Climate Change, Science, Research, and Tertiary Education (DIICCSRTE) recruited us as members of the CFI Soil Carbon Reference Group to help develop an Offsets Methodology for Trade. With a group of high performance carbon farmers we have been responsible for advising the Department on farmer uptake issues, the most intransigent of which is the Permanence Integrity Standard. It requires that carbon sequestered in vegetation and soils be held for 100 years. This is not acceptable to farmers because:

1.     The contract runs beyond the lifespan of the farmer.
2.     The CFI Act requires that all land enrolled in offsets programs be secured by a lien on land title.
3.     Banks do not understand the CFI and write down the value of the land affected to zero (in our experience.)
4.      Some people have talked down the potential of sequestration and talked up the risks, based on very limited science and much speculation.

There is little chance that the IPCC will shift on the 100 year period, at least in the short term. The only solution we can see is to reduce the perceived risk of the 100 years.

To do this we are exploring the potential of extending the CFI’s proposed 5% Risk of Reversal Buffer to 100% risk of reversal coverage which we believe could remove the major barrier to engagement.

The 100% buffer proposed would take the form of a 1:1 apportionment: for every tonne of CO2~e a farmer claims, an additional tonne is ‘banked’ in a ‘mutual society’-like account. The banked tonne underwrites the primary tonne against loss for any reason, removing the farmer’s liability to make good any losses.

At Year 25 soil carbon sequestration would be reaching ‘steady state’ or saturation. There can be no further ACCU’s earned and the operation enters maintenance mode. Under the CFI, there is no incentive apart from replacing the carbon or the Units should carbon be lost. However, as the risk reduces with the passing of the years, a percentage of the value of the banked tonne could be paid in 5-year increments until the 100th year.

With this ‘mutual society’ arrangement we are able to spread the risk across multiple farm businesses, multiple industries and multiple climate zones.
An alternative to the 100% Buffer presents itself in the form of carbon measurement technology that can measure to 100cm and more in a cost-effective way. As the CFI requires measurement to 30cm, this would leave the possibility of increases in soil carbon below 30cms to contribute to the grower’s banked tonne.

The Department are in favour of our solution, but believe it should operate as a private market offering. We believe the need for numbers of farmers and the encouragement it being run as a Government program, like a Pink Slip, would give would be most advantageous.

We need to validate the concept to gain approval from the Regulator. More important, we need to gain a tick from the market, that mythical beast that inspires many with dread. It can also inspire many farmers to do great things.

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