Tuesday, May 20, 2014

Banks’ blinkers block farmers’ carbon

Bankers and rural property agents have found that carbon farming is too hard to understand, so they have decided to opt out of the Carbon Farming Initiative. Rabobank is blocking a 5,000ha native vegetation carbon sink scheme on Cate and Mark Stuart’s Charleville cattle station, Mount Morris. The 20,000ha property has been seized over a $2+million debt.
The Stuarts say that the project is eligible for verified credits under the CFI, with income of $400,000 per third year.
Rabobank says the problem with carbon farming is that it ties up farmland for too long, 100 years under government rules. The bank sees the stored carbon in mulga reserves as a liability if the property was to be sold in the future. It does not see the carbon as an asset. “Because they cannot put a value on the changed land management, property agents and bankers use a $0 per hectare value default,” says Michael Kiely, of Carbon Farmers of Australia. “We had  the same experience when we applied to install 50 metre wide tree corridors,” he says. “Even though we had permission graze the areas, the bank admitted that the uncertainty causing the risk was their ignorance of carbon farming and how to value it.
But Queensland graziers Shane and Shan Joyce on “Dukes Plain”, south of Theodore, can put a value on it.. Dukes Plain is a 7900 hectare sub-tropical property of which 3000 hectares is used as grazing land for beef cattle. Areas of natural revegetation with 40% canopy cover are yielding nearly 40% greater return than those areas that were completely cleared. Trees are providing protection to the pastures and soils, allowing for much better growth and increased fodder for the cattle. Water loss through evaporation is better controlled.
The use of trees in agricultural systems can boost nutrient cycling and have positive effects on chemical and physical condition of soils. Trees add organic matter to the soil, in the form of roots or litterfall, or as root exudates in the rhizosphere.[1] These additions are important to a vast range of organisms involved in soil biological activity and have effects on soil nutrients and fertility, according to scientists.

“Bankers and brokers and lawyers and accountants in the regions have got to come to grips with the science and practice of carbon farming,” says Carbon Farmers of Australia‘s Michael Kiely.

To build awareness of the opportunities in the services that will be needed from 1 July 2014, CFA is running The 1st One Million Tonnes is a landscape carbon removal challenge to extract the first million tonnes of legacy load CO2 under the Direct Action CFI Emissions Reduction Fund. It is a Milestone set to kick-start Australia’s journey towards its target to reduce its emissions by 5 per cent compared with 2000 levels by 2020…

What is the Legacy Load?

The cause of the extreme weather events we endure is NOT the Greenhouse Gases everyone is arguing about as they try to curb future emissions. The gases doing all the damage are already in the atmosphere, some released more than 100 years ago.  It is past emissions – your grandfather’s and his father’s emissions – that are causing extreme weather.

[1] Nair, P.K.R., Nair, V.D., Kumar, B.M. & Showalter, J.M. (2010). Carbon sequestration in agroforestry systems. Advances in Agronomy, 108: 237 – 307.                                                                                

Monday, May 19, 2014

Submissions invited on Emissions Reduction Fund draft legislation.

The Australian Government is calling for public submissions on the draft Emissions Reduction Fund legislation. The consultation period will be open until 23 May 2014.
For more information please visit www.environment.gov.au/emissions-reduction-fund or call 1800 852 974.
The Emissions Reduction Fund exposure draft legislation is available at www.environment.gov.au/emissions-reduction-fund.

ERF’s $2.5bn survives Joe Hockey’s Razor Attack

In the Federal Budget the Government confirmed $2.55 billion funding for the Emissions Reduction Fund. A lag in entering into contracts, delivery of abatement and payments will mean the process is slower than anticipated. 

A total of $1.1bn is to be paid in the first four years. 
The $2.55 billion will be paid out over ten years. Market analyst Reputex forecasts “scarcity of ACCUs in the first half of FY15 likely to be particularly acute due to the requirement for the government to develop methods and participants to register projects for new abatement activities.” The scarcity of bidders will mean funding is unlikely to be exhausted in the early years, leaving a large amount of capital available for small and large bidders. “Low supply and low competition for funds may provide an opportunity for early movers to secure higher priced contracts while participation in the ERF is low.” “Current CFI participants - the only current ACCU generators - are expected to take a high bid approach in the ERF's initial rounds . 
”This is expected to inflate ERF prices in early auction rounds, before prices fall in line with growing supply and competition for funds.” 

Aggregate! Aggregate! Aggregate!

The Government wants to streamline the ERF’s processes. It’s reverse auction system will deal in minimum bids of 2000 tonnes CO2-e. The Government believes that few farmers could produce such volumes via soil carbon. But 2000 tonnes of CO2-e extracted from the atmosphere is the equivalent of 550 tonnes carbon in the soil. If we want to be ultra-conservative, we could accept the CSIRO’s upper estimate of 500kg of carbon sequestered per hectare per year.[1][2][3][4] That figure of 500kg translates into 2 tonnes of CO2-e (ie. C x 3.67 = CO2-e).  So an individual farmer could put together a bid with 1,000ha. But 72% of Australian farms are smaller than 500ha. This means most farmers will have to join with others to go the market, by having their offering aggregated or pooled. Aggregators will soon be thick on the ground: NRM groups, farmers groups, trading groups, brokers, suppliers of products and services with client bases, etc. What should you look for in an aggregator? No.1: Knowledge. Have they done any training? (Those who have attended Carbon Farmers of Australia 2-day Workshop have a grounding. Few, if any, seminars conducted (with ‘carbon farming’ in the title) have included any information about carbon markets. 2. Expertise: Have they been part of the Government’s consultation process? Do they have a track record in the field?  3. Attitude:  Do they have a healthy attitude towards market-based solutions to funding delivery of environmental and climate services? 4. Experience: Do they have any clients trading offset units? Have they been engaged for some time in the processes that have led to the market or have they just arrived? 5. Services offered: What services can you access through them? Baseline measurement? Insurance? Auditing? Pool management? Access to voluntary markets? Choose wisely.   

PS, Another way to  assemble 2000 tonnes could be bundling different methodologies for the same property., according to the Department.

PPS, Individual enterprises that can supply 200,000 tonnes can negotiate their own contract timings and conditions, a recognition of the long leadtimes for bespoke projects.
Common Sense Cuts Costs
The cost of measurement of soil contributes a great deal to the impression that the economics of soil carbon is all out of whack. Jeff Baldock has managed to bring the cost down, but not far enough. A major component of the overall cost is the calculation of bulk density. This could be simplified by using a default figure of 1.0. I have spoken to senior scientists who believe that this would more than meet the needs for a discount to balance the risk attached to a default. It could be focused on certain soil types to further reduce the risk, or clay vs sandy soils.

Co-benefits no benefit

One of the Minister’s criteria for including certain units in an auction is  Whether the activity could have adverse social, environmental or economic impacts.” While we agree with assigning a negative value for the ‘side effects’ of an activity, we also believe that there should be some recognition of the positive co-benefits of soil carbon-based units. And taking account of this value in the unit price in the auction system. The budget for the Department of Agriculture’s program that aims to promote sustainable farming could be assigned to be spent as a fixed-price augmentation of the price secured by soil carbon projects. Wherever it comes from, we need to ring the bell for co-benefits.

Make Good No Good?
 “Some business groups saw make-good provisions as a disincentive to participation, others were of the view that make-good provisions would support the underlying objective of the Emissions Reduction Fund.” Surely one of the “underlying objectives” of the ERF is participation. If no proponents submit units for sale, the program has failed and all investment in it has been lost. The Identification of disincentives to participation should be done urgently and addressed immediately.

A question of credibility

At the White Paper Consultation gathering in Sydney on 14th May we were able to put the following “make or break” question to senior departmental officers.. The background to the question is summed up in these 4 points:

1. The Reverse Auction works when a group of sellers bid a price to the buyer who chooses  (usually) the lowest price.
2.The Emissions Reduction Fund reverse auction system is managed by the Clean Energy Regulator (CER).
3. The sellers bid for contracts to deliver emissions avoided or sequestered by a specified date in the future. (Usually 5 years.)
4. The CER can refuse to allow a bid to be made if it decides, among other things, that the estimates of the amount of carbon that will be captured are not “credible”. That is, the rate of increase cannot be referenced in ‘sound science’.
The question: “What information will the Clean Energy Regulator rely upon to decide whether the estimates of soil carbon are credible or not when there is controversy about the data indicating the potential of innovative methods to sequester carbon. Dr Jeff Baldock, who directed the $24m Soil Carbon Research Program- the latest research - described it as a ‘single point in time’ study. As such it cannot be used to make judgements about changes in carbon stocks. As well, it did not address many of the latest innovations in land management. The CSIRO told the recent Senate Inquiry into the ERF that soil carbon’s contribution to meeting the Government’s target will be ‘small’ and ‘modest’. The maximum amount which could be captured under pasture is 0.5 tonnes of carbon per hectare per year, according to scientific reports.  Data gathered on the farms of best practice carbon farmers has detected increases of more than 2 tonnes/ha/yr. Such data is suspect among scientists and often discarded. Such data described as ‘outliers’, rare data points that skew the findings away from the average. But, while this is a legitimate approach when the average is the answer sought, when seeking the potential (or highest possible level achieved) the ‘outlier’ is the answer. Unable to be found on the radar of accepted data, carbon farmers were looking forward to demonstrating the capability to capture and store carbon in soils at rates far higher than ‘small and modest’. But a decision by the CER that a bid lacks credibility because it proposes to increase carbon levels at rates that are not based on ‘sound science’ could be problematic. We recommend that proponents be permitted to take the risk of bidding higher rates of sequestration and manage the situation via “Risk of Reversal” arrangements in the contract.
The ERF White Paper gives the CER flexibility to manage risk via the contract: “Projects will be subject to a range of uncertainties that could affect the timing and amount of emissions reductions delivered. Many are beyond a company’s reasonable control and will be set out in the contract. For example, a project could be affected by natural events such as floods or fires. The contract will enable the Clean Energy Regulator and the business to vary the quantity and schedule for delivery of emissions reductions if the project or measured emissions are affected by these specified circumstances.”
PS. We are investigating the possibility of selling the carbon in excess of that which is contracted in the ERF by packaging it for sale on voluntary markets, here and overseas.

“Boo!” It’s the 100 Year-old boogie-man.
The truth about the 100 Year Rule has a hard job getting through to farmers. Even 25 years is not seen as a concession.  To break through the rusted-on reputation , the Government must drop a  large stone in the pool, ie. do something highly visible to remove the fear of a long contract: extend the ‘risk of reversal’ buffer that currently operates under the Carbon Farming Initiative far enough to cover the proponent completely. The message must be as simple as that used by the Government to “Axe the Tax”. The alternative – relying on private enterprise to take on the responsibility – fails to take account of one very material difference between a private vs a government regulatory solution: The market is saturated with a high level of brand awareness of the characteristic association between “Soil Carbon” and “100 Years. This will not fix itself. The government can fix it by a system whereby every transaction is ‘taxed’ an amount which can cover the farmer’s liability for the entire 100 Year period. The amount taxed can thereafter be returned in increments to the farmer as time passes and the risks are reduced. The Government can sell the system to private enterprise once it has been established and completed its job of removing the barrier to involvement that 100 Years represents.

[1] “In Australia, research has demonstrated that pasture improvement (such as sown pasture or fertiliser application) can lead to significant increases in SOC sequestration (500 kg C/ha/yr, Gifford et al. 1992*) compared to unimproved pasture. Long term trials in Australia have shown that this rate of SOC increase can be maintained for at least 40 years as a result of pasture improvement (Russell and Williams, 1960).”
[2] Gifford, RM, Cheney, NP, Noble, JC, Russel, JS, Wellingtpon, AB and Zammit, C 26 (1992), “Australian land use, primary production of vegetation and carbon pools in relation to atmospheric carbon dioxide concentration”, in Gifford and Barson MM, Australia’s renewable resources, sustainability and global change, pp. 151 – 188, Bureaux of Rural Resources, Bureaus CSIRO, Australia

[3] Russell, JS and Williams, CH (1982). Biochemical interactions of carbon, nitrogen, sulphur and phosphorus in Australian agroecosystems. In: Galbally, IE and Freney, JR (eds) “The Cycling of Carbon, Nitrogen, Sulfur and Phosphorus in Terrestrial and Aquatic Ecosystems”. Australian Academy of Science, Canberra, September 2006, Hunter Water Corporation
[4] K Y Chan, A Cowie, G Kelly, Bhupinderpal Singh, P Slavich, Scoping Paper: Soil Organic Carbon Sequestration Potential for Agriculture in NSW , NSW DPI 2008