Australia Moves on Carbon Farming

Australia’s federal government has taken many by surprise with the speed of its efforts to undo the legislative blunders that led to the effective destruction of the voluntary carbon market in Australia.

The tight deadline it has set for the implementation of one of its key election promises – the so-called Carbon Farming Initiative – has come as a great relief to many in the industry. So says Giles Parkinson in Climate Spectator

Giles Parkinson in Climate Spectator (23 November 2010):

The federal government has taken many by surprise with the speed of its efforts to undo the legislative blunders that led to the effective destruction of the voluntary carbon market in Australia.

The tight deadline it has set for the implementation of one of its key election promises – the so-called Carbon Farming Initiative – has come as a great relief to many in the industry and suggests that it is serious, not only about talking about a carbon price, but about doing something, too.

Draft guidelines for the CFI were released on Monday and submissions are invited by January 21. The government wants legislation passed in the first half of 2011 so that the scheme can come into effect by July 1 next year.

This will give Australian corporations the opportunity once again to take early action to reduce their emissions – either in anticipation of a compliance market and an emissions trading scheme, or to give themselves a pat on the back in the voluntary market.

It will also open up opportunities for project developers to sell carbon credits to international buyers – such as heavy emitters from Japan, South Korea and elsewhere – and to bring key constituents, such as the farming lobby, on board for a carbon pricing regime.

It’s hard to estimate how big the market created by the CFI could be, because so much depends on final legislation and plans for a broader carbon price; and how many international offsets are allowed by other countries.

However, land use – including agriculture – makes up around 23 per cent of Australia’s emissions. Halting land clearing could reduce emissions by up to 63 million tonnes of CO2-equivalent a year, nearly half of the government’s unconditional target of a 5 per cent cut by 2020. And it is estimated that up to 250 million tonnes could be absorbed by restoring degraded grazing country and more soaked up through better cropping practices.

The guidelines for the CFI include a range of potential offset mechanisms such as forestry (reforestation and revegetation), reduced emissions from livestock, reduced fertilizer emissions, manure management, soil carbon sequestration, savanna fire management, and reduced emissions from rice cultivation (capturing the methane produced), and reduced emissions from landfill waste.

Not all of the mechanisms will be recognised internationally, which means that some projects will be limited to the voluntary market (and a lower price per tonne of emission reductions) and will not be included in Australia’s official emission budget.

Some, such as savanna-burning, are still subject to intense negotiations at the international level, in the so-called LULUCF (land use, land use change and forestation) component of climate change talks that will continue next week at Cancun, in Mexico.

Savanna-burning holds great potential, particularly in northern Australia and among indigenous communities. The idea is that by taking early and proactive action, the amount of emissions produced by controlled burning is about 20 per cent less than that from wildfires. 
 
But this is not internationally recognised, so such credits cannot be used in international compliance markets, but higher sequestration levels generated by re-growth from such burning is recognised for the purpose of voluntary markets. ConocoPhillips has previously completed one such investment.

The complexity – scientific, administrative, management and verification – that accompanies this and other mechanisms is enormous. The guidelines issued by the Department of Climate Change may well state their preference for “clear and simple” rules, but this will need to be balanced by the need for stringent controls, otherwise the carbon markets in their entirety will be questioned.

Similar questions have accompanied the UN’s Clean Development Mechanism, and will no doubt be attached to the proposed Redd+ mechanism proposed to protect forests.

Other interesting initiatives are the recognition of “co-benefits” from forests – meaning that the benefits of their contribution to biodiversity, water management, erosion control and jobs can also be advertised to potential buyers. The CFI guidelines also offer a salvation to companies specialising in trapping methane from landfills.

The measures are likely – subject to detail – to be supported by the Opposition, which sees many of the mechanisms as a ringing endorsement of the direct action policy. (The Greens are not so keen, fearing that it resembles a managed investment scheme.) But the CFI, with some additions and exclusions, largely represents the forestry component of the CPRS, and will likely form the basis of any future emissions trading scheme that might be developed by the current government. If the government plumps for a tax instead, it is possible that tax obligations could be offset by investments in such projects.

Martijn Wilder, the head of the climate change practice at legal firm Baker & McKenzie, says it is a good consultation paper and shows the government is intent on moving quickly.

“It provides a framework for generating government endorsed carbon rights … the result being is that Australia will have a suite of both Kyoto and non-Kyoto credits that can be used in domestic and international market,” he said.

But he notes that while this initiative addresses the supply of credits, demand for the product is still to be resolved. “You need for these credits to be purchased,” he said. That will depend largely on international regimes imposing obligations to reduce emissions – and allowing credits to be sources in other markets – and for confidence in the domestic market that these projects will be able to meet compliance targets in the future.

Andrew Grant, the CEO of offset developer CO2 Ltd, said since the combined impact of the cancellation of the Greenhouse Friendly scheme, the introduction of a new national carbon standard and the cancellation of the ETS, meant projects in Australia had been stymied.

“For a business like us, we can participate in international carbon market, so it’s a huge outcome. This is the first piece of policy that looks to give certainty to the market.”

Grant said his company had projects that were potentially attractive to Japanese clients who could take those credits back to Japan to meet domestic reduction targets. But many buyers were still shy of investing because of the huge changes that had taken place in recent years. “It’s important to get the rules clear,” he said.

Source: www.climatespectator.com.au/