Shelter for livestock is crucial to maintaining farm productivity. Many farmers are becoming alarmed by the rapid spread of the cypress canker fungi, Seiridium which can rapidly kill whole shelter belts, depriving farms of all their windbreaks where cypress is the only existing species.

The fungus exists world-wide but in Victoria seems to be spreading because the natural resistance of cypress trees has been weakened by a shift in environmental conditions from settled seasonal variability to longer dry periods mixed up with warmer wet periods. There is no proven cure for the disease.

Replacing shelter belts is expensive, but farm productivity is likely to plummet if dead cypress shelter belts are not replaced. In large parts of the Western District, cypress are the dominant species and the canker is having a devastating effect. At this stage, there appear to be no government programs available to assist farmers in bearing the costs of tree removal and replanting.

Carbon credits represent an opportunity to receive an income stream that could help to offset the costs of shelter belt replacement. Shelter belts such as the long-living but now dying cypress plantations are uncontroversial and necessary farm infrastructure that have provided amenity and productivity benefits to farms for generations. Carbon credits can be earnt by replacing the cypress with native species. The highest returns will be available where the shelter belts remain for at least 100 years. This will produce an income stream for the life of the plantation, at the same time as providing all the other benefits such as shelter, firewood, habitat for native birds and animals etc.

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Unfortunately, there is not a lot of detail available yet to put flesh on the bare bones of Coalition policy  announced before the election. Those who wish for certainty in carbon pricing policy may still be waiting some time. Announcements can be expected soon, but the following is a summary:

To replace the Labour-designed scheme which was geared toward the creation of a market for carbon credits eventually capable of being traded globally, the incoming Minister for Climate and Environment Greg Hunt has foreshadowed that his government will implement a carbon abatement scheme known as the Emissions Reduction Fund, a taxpayer-funded buyback scheme capped at $300 million in its first year of operation, $500 million in its second and $750 million in its third year.

In a speech to the Grattan Institute in June 2013, Hunt likened the DAP to a Federal government buyback of water entitlements in the Murray Darling system and to Landcare biodiversity funding. He called it “a simple, low-touch market mechanism”. He said it will operate as a “reverse auction” just like a contract for sale of wheat in that government will pay only on delivery of actual abatement, at the lowest price it can obtain.

What this means for people still interested in investing in carbon farming and what sort of incentives will be offered to encourage participation may become clearer in a few months. Given that the CFI has now been available since 2011 with a carbon price of over $20 supporting it yet, even so, uptake has been slight at best, does the new government believe farmers will be attracted to abatement prices of around $6 (the current EU ETS price and global benchmark)? Will the government effectively create a  subsidy  with a price of around $12 to encourage participants?

Also, will the government enter into long term contracts to pay farmers who take the initial risk of investing in carbon farming or will the scheme change after 3 years since the commitment is only for that long? An ETS  would have allowed farmers and emitters between them to take these long term risks and make commercial arrangements themselves in a market of buyers and sellers. The new government   has pledged itself to  emission reductions through using a capped amount of taxpayer funds that must send some sort of price signal (a carbon price?) to  emitters and sequesters to attract their interest, but its plan does not directly impose a cost on polluters, so there is a risk of the DAP becoming a system of patronage cherry picking winning recipients of taxpayer funds while leaving heavily-polluting sectors untouched.

Hunt committed the new government to a program of calling for submissions on how to implement the DAP within 30 days of gaining office, consulting between 60 and 100 days, releasing a White Paper and draft legislation by day 100, receive further feedback and release final legislation by day 150, which means some time in March 2014.

Hunt promised to “unblock the approvals process” as well. What that means may also become clearer in time. He will introduce a 25 year option for land-based sequestration to replace the 100 year permanency requirement which has discouraged widespread participation in the environmental planting methodology that has been available from the outset.

Verification of the effectiveness of sequestration must always be a high priority in any scheme whose ultimate purpose is to permanently remove carbon from the atmosphere. It appears, but is not confirmed, that the new government will retain the machinery for creation of carbon credits from the Labour legislation in order to monitor that sequestration is real and not fraudulent. The distorted landscape management outcomes of the Managed Investment Schemes blue gum plantations are still a recent memory for many farmers.

It is recognised that accurate carbon sequestration accounting in broad Australian landscapes is affected by many variables such as soil types, rainfall, drought, fire and must be conservative to allow for these variables. Methodologies such as soil carbon favoured by the Liberal/National Coalition in the 2010 and 2013 elections promise much but  difficulty in measurement has meant that large amounts of research funding have needed to be invested in these areas.

Prospective CFI methodologies in the pipeline already even before the change of government look promising. They include (with date of likely approval of methodology following):

Livestock Feed supplements to reduce dairy cattle emissions- July 2013

Nitrate feed supplements to reduce grazing beef cattle emissions- Late 2013

Feedlot finishing of beef cattle in northern Australia- Early 2014

Feed supplements to reduce emissions from grazing cattle and sheep- Mid 2014

Building soil carbon- Early 2014

Application of biochar (created from livestock waste) to agricultural soils- Mid 2014

Reduced fertiliser use in irrigated cotton crops- Early 2014

Passive landfill gas drainage and bio-filtration for small landfills- Mid 2014

Rangeland restoration- Late 2013

Managed regrowth of native forests- Late 2013

Long rotation forestry- Late 2014

Avoided harvest of native forest- Late 2014

Woodland restoration- Late 2014

The above methodologies show that progress is being made and opportunities for farmers interested in emission reductions and carbon sequestration are increasing. Although the Abbott government scheme could hardly be termed ambitious and it is unknown whether it will achieve even the modest 5% target by 2020 and it is generally acknowledged that it will be an unsuitable mechanism for the much deeper emission reduction commitments needed to keep global temperature increase to less than 2 degrees, nevertheless it is something and that is slightly better than nothing.

The politics of climate change are likely to remain fractious in Australia for some time because of this nation’s dependence on coal exports. Although most of the debate appears to be about our domestic emissions and methods to reduce them, in reality our contribution to global warming through coal exports dwarfs our domestic emissions. Although governments change, there appears to be firm bi-partisan agreement not to discuss this. If we are serious as a nation about our responsibility for global warming, it makes no sense  for the major parties to refuse to discuss such an important issue.

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To satisfy the legal requirement that this type of project makes a contribution to sequestering carbon, it appears that farmers who wish to accrue carbon credits through farm forestry projects will need to maintain an overall constant level of  carbon on their land for the 100 year period  in the same way that applies to the environmental plantings methodology. Allowances can be made, however, for harvesting a certain amount of timber from the plantation, which will be reflected in the price paid for the verifiable amount of  overall carbon sequestered for  the 100 year period.

Farmers will be able to choose which species to plant for harvesting and which for long term retention, and  it seems clear even at this early stage that there may be advantages in planting trees   for carbon that quickly accumulate carbon credits and higher value  timber trees for harvesting as a mixed balance in the plantation that is designed to deliver income streams that suit the farmer’s long term goals. The number of variations will be as vast as the number of farms. There are really good opportunities in the long term for tree growing to contribute to farm income, perhaps not solely through carbon credits, but in combination with high grade furniture quality timber harvesting.

It is a problem, however, that it is not particularly easy to find government information on these topics, many people who have an interest in carbon farming are rightly disappointed in the lack of political leadership and continuing uncertainty in this area. The Liberal-National Coalition does not offer  a lot of positive hope for the future either, with its policies  focussed mostly on the short term goal of repealing the carbon tax and a lot of confusion about the workability and budget implications of its direct action plans.

As mentioned in the previous post, a lot of the groundwork has been done  by the parliament under the Gillard government to create these opportunities for the rural sector. If Australia moves rapidly to adopting the international floating price as has been signalled by the Rudd government, increasing participation and intervention in carbon policy by USA and China is likely to  exert upward pressure on carbon prices.

The current low price may continue to discourage mass participation by many farmers for the time being while Australia’s  mainstream parties fail to provide leadership on the issue but, like any market, there will be those who understand early that growing trees is the only proven way of withdrawing carbon from the atmosphere. Nature has been doing it for hundreds of millions of years, and future generations need a liveable planet to be passed on to them. Combining farm diversification with a small amount of idealism and inter-generational equity is a fairly modest goal, but it is best to set realistic targets.

Carbon farming is only one aspect of  the global approach that is needed to address the enormous implications of climate change. Given that the sacrifices needed to adapt to a radically different climate will become greater as global temperature rises and droughts bite harder, farmers are in a unique position to make a relatively painless contribution to  the effort. This is the idea behind carbon farming. Markets are generally based on participants who are motivated by self interest, but the carbon farming market is different in that its goal is to use natural processes such as photosynthesis to keep the planetary atmosphere  in a condition that gives hope to those who come after us. The financial aspects of carbon trading provide the framework for investors to realise returns on investments in carbon sequestration. Like all markets, prices can vary depending on demand and the carbon market in Europe has clearly been distorted by the amount of free permits given to polluters who have flooded the market with them. As the market matures, free permits will be phased out and more genuine price signals will occur.

In the meantime, many farmers are already interested in growing trees for shelter, amenity, biodiversity, superannuation and timber, so carbon sequestration simply adds another reason.

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While there continues to be a significant degree of uncertainty as to future policy directions in relation to a carbon price,  a solid amount of work has already been done in setting up a legal framework on which a  long term carbon market can develop.  Every market has its early and late participants; the distinguishing feature of the carbon market is that it has been created to (1) reduce and (2)  reabsorb pollution of the atmosphere released by the emission of green house gases. The aim of this is to  prevent global temperatures rising so much that the planet becomes irrevocably degraded as habitat for the species now living on it.

Traditional markets (such as coal) start with a commodity in demand and prices are determined by supply and demand. Global economic growth is still based to a large degree on fossil fuels, so  carbon markets  are badly distorted by  economic signals that rely on  rising fossil fuel demand to continue to drive economic growth. It will take time for the carbon market to achieve the type of recognition that the energy market currently possesses. Energy use and fuel pricing has become a fundamental element of human societies, yet carbon pricing encouraging sequestration will need to become just as important if global temperatures are to remain within tolerable limits.

The good news is that the Federal Government has just released (June 2013) new regulations which allow farm forestry to be an eligible carbon farming alternative. This opens up opportunities for farmers to plant trees as  small scale plantations, to operate those plantations as commercial tree growing operations and to obtain carbon credits as well.

In areas of 400 mm+  rainfall, a farm forestry project will need to be no larger than 100 hectares or 30% of total farm area so that it is distinguishable from a commercial plantation industry. In areas of  less than 400 mm  rainfall, a farm forestry project will need to be no larger than 300 hectares or 30% of total farm area.  This new methodology for carbon sequestration will be welcome to landholders who wish to diversify into tree planting but especially so to small landholders who wish to enter the carbon market but do not see the current carbon price as sufficient  by itself to justify the costs of tree planting and setting land aside.  With this new methodology, it will be possible to derive income from harvesting of plantation products while still remaining compliant with the rules of the carbon trading market.

The additionality requirement stemming from the Kyoto Protocol that set a 100 year project parameter  for environmental plantings under the Carbon Farming Initiative has been seen as a barrier for farmers to enter the carbon trading market, even though the science backing it is sound. There will be more detailed posts  about additionality  following at a later date on this blog.

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