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Overview
• The Challenge
• The Policy Response
• The Carbon Farming Concept
• Carbon Farming – The mechanics
• The opportunities for Landholders
• Risks
• Local Returns
• Carbon Markets
• The Role of Natural Resource Management Agencies
Climate Change
• Climate Change is real to us!
– Governments are making policies based on Climate Change being real
– Consumers are making choices based on Climate Change being real
– This makes it real
Climate Change • Climate change is a global
issue
• Requires a global response
• Global Policy Response is the Kyoto Protocol
– International Cap and Trade
– Australia has bipartisan target of 5% reduction of 2000 levels by 2020
Domestic Policy Response
Bipartisan target of 5% reduction from 2000 levels
Clean Energy Future
Charge high emitting businesses for
CO2e released
Reward activities that reduce
emissions or sequester carbon - CFI
by including land based credits to be
purchased by companies to offset
Carbon Price
Direct Action Plan
Govt will buy carbon to meet target
Reward energy efficiency on other
business sectors
•Reward activities that reduce
emissions or sequester carbon -CFI
–Land practices
Clean Energy Future
• 300 or so high emitting companies (<25k tCO2e) Must surrender 1 ACCU for each tonne of CO2e emitted
• Companies get ACCUs or certificates by: Compensation (free) from the Government
Purchase from the Government auction system
Purchase from the secondary market
Purchase from the domestic and international offset market* *international purchasers only after 2015
• 3 year fixed price ($23+/tCO2e)
• 2015 - move to full ETS - one way linkage with Europe ETS
• 2018 - full linkage with EUETS
• 1 Australian Carbon Credit Unit (ACCU) = 1 tonne CO2e
Price on Carbon and Agriculture
– Agriculture is excluded from a price on Carbon
– Farmers will pay a price on carbon through increase costs of inputs
• Diesel, Electricity, transport, steel, chemicals, fertiliser, plastics
– Farmers will pay a price on carbon through increase costs of processing
• Transport, handling and processing costs to rise
• Many farmers expect Agriculture to be a covered sector eventually
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Clean Energy Future and the CFI
• Carbon Farming can create “offsets” that Liable entities can use instead of paying tax
• CFI linkages to carbon price 5 % of emissions as offsets during fixed price
period; 50 million tonnes in fixed price period/$1.25 Billion
• Land sector credits can be exported
• Voluntary
• Bipartisan approval
• Not Carbon Vs Farming
• Is Carbon and Farming
• Not Competitive but Complimentary
• Most actions will – Prepare you for predicted climate
change
– Provide revenue to offset rise in input cost
– Reduce your exposure to carbon price
– Increase property productivity
Carbon Farming Initiative
Integrated Carbon Farming
Manure management Fertiliser
management
Revegetation
Soil carbon
Crop residue
management
Landholder
PROJECTS Farming Income
Carbon income Cross
production benefits
$
$
$ =$
See carbon as a part of farm business •Ensure carbon is a part of the long term management objectives •Incorporate into whole farm plan •Identify long term risks and obligations/limitations to farm management
Manure management
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Paddocks of gold or get rich quick scheme?
Carbon Farming is a policy construct
driven by factors not common to ag
not weather, commodity demands, global trade
Carbon Farming takes time
turning around ecosystem processes
changing embedded farming practices
Carbon Farming Initiative - Key concepts
• What is the change in carbon associated with that parcel of land that can be attributed to a change in management.
• What is the net effect on the atmosphere? • How can I measure and report on that change? Is my
method backed by science and consistent with international rules
• Is it beyond business as usual, is it additional • Is it a permanent change- can it be reversed? • Can every carbon credit issued must be backed by the
same amount of carbon on site?
Carbon Farming Initiative
The CFI is based on the following integrity standards:
• Additional - would it have happened in the absence of
the scheme?
• Permanent - is the abatement permanent?
• Avoidance of leakage
• Measurable and verifiable
• Conservative
• Internationally consistent
• Supported by peer reviewed science
Some general rules for CFI
• Methodologies spell out how to manage a project Different methodologies for different project types
Monitoring, calculations, reporting etc
Must meet all regional NRM plans and other statutory plans
Sequestration projects Notification of consent of all land parties
Notification of project on land title
Risk of Reversal Buffer – 5% of issued credits
• Within the scope of the CFI – Land based activity described in the regulations
• Be on the Positive list
• Not on the Negative List
• Have an approved methodology – Meet the methodology eligibility criteria
• Eg fertiliser efficiency - no drop in yield – Reforestation – PEP – mix of species, no grazing for 3 years
– Savannah burning - areas over 1km2 , areas over 1000mm
Eligibility
Positive and Negative list
• + Dynamic list of project types that automatically qualify for additionality.
– E.g. Permanent environmental plantings
– Common practice test can determine additionality
• - Dynamic list of projects that are automatically disqualified
– E.g. no weed species
– for harvest plantations in areas with rainfall over 600mm • Unless for salinity control, or
• An equivalent water right is held for water interceptions
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Positive and Negative list establishes approved and
prohibited activities
Methodologies provide rules for undertaking
activities
CFI provides framework for reporting, auditing and
certificate issue
Methodologies under consideration •Avoided emissions from diverting waste from landfill through a composting alternative waste treatment technology •Diverting waste to an alternative waste treatment facility •Measurement-based methodology for Farm Forestry Projects •Another 20 under consideration
Approved Methodologies •Permanent Environmental Plantings •Avoided emissions from diverting waste from landfill for process engineered fuel manufacture •Destruction of methane from piggeries using engineered biodigesters •Methane Capture and destruction from landfill •Methane Capture and destruction from piggeries and Dairies •Landfill diversions •Savannah Burning •Human-Induced Regeneration of a permanent even-aged native forest •Afforestation and Reafforestation
Generating carbon credits
Check project eligibility and
viability
Does a methodology exist
Is it in positive or negative list
Compare land uses / management
practices
Register as a eligible entity
Prepare documentation and
apply to be a registered offset
entity
And ANREU account
Submit documentation to CFI Administrator
Register Project
Maps, models, documentation
plans etc
Obtain notification of consent,
notification on title, conformity with
statuary
Submit project application to
Scheme Administrator
Monitor Report and Verify your
project
Monitor the abatement or
sequestration and emissions from your
project
Prepare report for CFI administrator (e.g. monitoring, models, data etc)
Have your reports verified by a third
party auditor
Create and Trade your
Credits
Apply for credit issuance from CFI
administrator
Receive credits and trade or hold
Maintain your carbon on site
(sequestration only)
Compliance, termination and
transfer
Emissions Soil carbon depletion Non Kyoto vegetation Feral animal emissions
Sequestration/Abatements
Soil carbon sequestration
Non forest veg management
Improved forest management
CFI Credit streams
Kyoto CFI Credits
Non Kyoto CFI Credits
Emissions Deforestation Livestock emissions Nitrogen in agricultural soils/rice Burning of savannas
Sequestration/Abatements
Reforestation
Manure management
Fertilizer management
Avoided deforestation
Livestock emissions mitigation
Early season Savannah burning
• Credits created after abatement or sequestration
• Credits issued after reporting and verification
• Reporting Periods from 12 months to 5 years
• Land sector credits can be exported
• Sequestration has a long term maintenance obligation
– must back every issued certificate with an equivalent tonne of carbon on site
• Certificates have no expiry date –can be banked
CFI –key points
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• 80% clear of vegetation on 31/12/ 1989 or legally cleared after 1990
• clear for at least 7 years prior to planting • revegetated after 1/7/2007 • revegetated by human induced methods • canopy over 2 meters and 20% closure at maturity • area greater than 0.2 Ha
CFI Forestry Rules
Harvesting is treated as an emission
10 years to recover from fires and
depletion events
Carbon must remain on site for 100 years
Common Land Based Greenhouse Gasses and Global Warming Potential
GAS Symbol GWP
CO2e
Common Source
Carbon Dioxide
CO2
1 1
Fuel emissions, vegetation
burning
Methane CH4 25 25 Livestock
Nitrous Oxide N2O 300 300 Fertiliser
CFI - Opportunities
Native Planting Agro Forestry Improved forest management Soil carbon sequestration SINKS HAVE A MAINTENANCE OBLIGATION
Fertiliser and manure management Reduction of enteric fermentation Avoided deforestation Crop residue management Rice emissions management Legacy landfill emissions Waste management Savannah burning management Feral Camel Culling
SOURCES SINKS
Break down of Agricultural emissions
0
10
20
30
40
50
60
Enteric fermentation Manure management Rice cultivation Agricultural soils Prescribed burning of savannahs
Field burning of agricultural residues
Mt CO2-e
Source: CIE (2010), ABARES (2010), DCCEE analysis.
0
1
2
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5
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7
8
MtC
O2
e
Millions of t/CO2e abated in 2020
High
Low
Low uptake - 6 million tonnes abatement in the year 2020 ($134M@$20) High uptake - 22 million tonnes abatement in the year 2020 ($425M @$20)
Horticultural Opportunities
• Possible opportunities
– Nitrous Oxide abatement
• Fertiliser efficiency
• Soil carbon
– Mulching strategies
• Waste diversion
– Biomass to energy production
Sugar industry opportunities
• Fertiliser efficiency
– Reduce loss of nitrogen to the atmosphere
• Soil Carbon
– Store carbon in soil
• Bio-fuels
– Shell and BP
– Brazil and Argentina
• Bagasse bio digestion
Fertiliser Efficiency
• On positive List
– Emissions reduction project
• Methodology not close
– Eligibility criteria - not determined
– Monitoring and verification not determined( hard to cost)
• Cannot have adverse outcomes
– No drop in yield
Broad Acre Cropping / Grazing Opportunities
• Fertiliser efficiency – Sub surface – Urea inhibitors – Variable Rate Technology
• Soil Carbon sequestration
• Forestry – Windbreaks – Erosion control – Salinity control – Natural regeneration
Risks - there's plenty of them • Political
– Coalition has “Blood Oath” - to repeal Carbon Tax
– This will affect demand – CFI has bipartisan support and
will continue – Coalition government would
purchase credits to hit 5% target
• Price Risk – Markets are volatile due to
risk – Prices can vary dramatically
• On Farm Risks – New management practices,
new technologies – Project risks, delivery ,climate?
CPRS delayed
No policy
CFI and CEF
announced
Organisational Risks
• Carbon Credits are free and proper property
• Brokers/traders/agents/aggregators will need AFSL
– Not landholders
• Contractual and commercialisation risks
– Agency agreements, carbon sequestration rights
– Forward contracts, spot contracts,
Forest sinks effect on property Prices - Asset or liability?
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ton
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O2e
year
cumulative CO2e (ACCU)
Asset?
Liability? ?
Ayr – 10 hectare MSEP
Project Returns to 2050 CO2e/t
total tonnes C02e - 2050
1,558
average tCO2e/project/yr
39
Project Returns over 100 yrs CO2e/t
total tonnes C02e - 100 yrs
1,989
average tCO2e/project/yr
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Additional resources
• www.climatechange.gov.au/cfi – CFI handbook
– Guidelines and templates
• http://www.cleanenergyregulator.gov.au/Carbon-Farming-Initiative/Participants/Pages/default.aspx – Forms and guidelines
• www.dpi.vic.gov.au/agriculture/farming-management/weather-climate/understanding-carbon-and-emissions/making-cents-of-carbon-and-emissions-on-farm – making cents of carbon and emissions on farm
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Ben Keogh Managing Director Australian Carbon Traders p (03) 5470 5722 e [email protected] www.australiancarbontraders.com