Australia’s two major parties have promised to reduce the country’s emissions by 5% by 2020, with two different approaches. Labor has used carbon farming as part of its approach; the Coalition is making it a centrepiece. But analysis of Labor’s approach shows it is likely to fail, whoever pursues it.
The Coalition has promised to tackle carbon emissions through Direct Action, and without a price on carbon or an emissions trading scheme. The plan hinges on reducing emissions at the lowest cost, which may include managing soils, forests and farming, energy efficiency, carbon sequestration or cleaning up power stations.
Direct Action will use and expand the current government’s Carbon Farming Initiative to achieve these emissions cuts, using the initiative as a platform to deliver an Emissions Reductions Fund.
But the initiative hasn’t come under scrutiny in its current role, let alone as a centrepiece for delivering Australia’s climate commitments. So, what is the Carbon Farming Initiative, and is it ready to take a starring role?
The Carbon Farming Initiative is the first national offset scheme in the world to include carbon credits derived broadly from natural resource management. It includes avoiding greenhouse gas emissions such as methane and nitrous oxides from managing livestock, crops and savanna burning, and sequestering carbon from reforestation and avoided deforestation.
Farmers and foresters generate carbon credits for emissions reductions. Polluters can then buy these credits, known as Australian Carbon Credit Units. Presumably, the Coalition would purchase these credits under Direct Action.
That’s how it’s meant to work. Let’s have a look at whether it’s actually working.
The success of carbon farming depends on uptake. Treasury provides two scenarios for uptake of carbon farming based on two global action scenarios. The first is based on medium global action for stabilising greenhouse gases at 550 parts per million by 2100. The second is an ambitious global action scenario aiming to stabilise at 450 parts per million. The ambitious scenario is what Australia, and the world, agreed at Copenhagen in 2009 would avoid dangerous climate change.
Under the medium ambition scenario Treasury projected the carbon price to start at around A$23 per tonne in 2012-2013, with carbon farming delivering 6 Mt CO2-e (carbon dioxide equivalent, which allows us to account for other greenhouse gases).
The ambitious scenario fetches a carbon price starting at A$47 per tonne with 9 Mt CO2-e delivered by the land. Avoiding deforestation and reforestation makes up about two thirds of land sector abatement in both cases.
Carbon farming has now been running for nearly two years. What has it delivered? The answer is astonishing: virtually nothing.
Around 46,000 carbon units (each equivalent to a tonne of CO2-e) have been issued. This covers a little less than 1% of reductions needed for the year 2012-2013 under a medium ambition scenario, and about 0.5% of the ambitious scenario.
Why has carbon farming failed to achieve anything? One of the main reasons for this situation is that it’s not cheap to create offsets. In fact the idea that the land sector can provide low cost abatement is a bit of a furphy.
Under carbon farming, offsets are generated by developing a baseline level of emissions and crediting reductions from the baseline. The process is complex. Steps include:
- becoming a recognised offset entity
- opening a registry account
- undertaking a project according to approved methodologies
- submitting regular audit reports
- applying for carbon credits and having them issued.
Rigorous “integrity standards” are required including permanence obligations, which guarantee sequestration of greenhouse gases for 100 years. Australia is one of the few in the world to have such a stringent rule and it is one of the major obstacles to investment. Others use tried and true risk-based approaches such as insurance, which allow for shorter contracts.
Also, carbon credits are considered financial instruments. This triggers policy frameworks established Australia’s Corporations Act and other legislation.
Even before you step on the carbon farming treadmill there are costs associated with registering legal rights to carbon. In Queensland, for instance, you need to contract a surveyor to map and register one stand of forest. This might cost in the order of A$500-$10,000 or more depending on the complexity of the forest stand and whether you are registering the whole property or not.
At year three after planting (based on the wet tropics forests which have high sequestration rates) you might have sequestered 10 tonnes of CO2-e per hectare. Your cumulative return might be in the order of A$230 (or about A$76 per year) per hectare. This return would not cover the costs of registering legal rights to the carbon, let alone the cost of survey and plan preparation or the costs of establishing the forest.
If it is high-environmental-value forest, surveying and planning might be in the order of A$25,000 to A$67,000 per hectare.
With the government bringing forward a floating carbon price that links the European Union’s carbon price, currently at around A$6, you can expect enough from carbon farming for lunch (one good lunch, or three sandwiches).
Ultimately to invest in carbon farming requires two things: an ambitious global action agenda, and certainty of the investment environment for decades. Both the government and Coalition have committed to a 5% reduction of greenhouse emissions below 2000 levels by 2020. This correlates more or less to the medium ambition scenario (and an acceptance of dangerous climate change).
Certainty might be guaranteed under an emissions trading scheme that has global links in a world of high ambition. Under the Direct Action policy, however, the first round of money to purchase lowest cost abatement would be July 2014. And this would be a year before the policy would up for review.
Given this, the chances of carbon farming delivering effective abatement from the land might be about zero.