Briefing > SOIL CARBON & AUSTRALIA S POLLUTION REDUCTION TARGET. Soil Carbon & Australia s Pollution Reduction. Target. Summary. > July.

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1 SOIL CARBON & AUSTRALIA S POLLUTION REDUCTION TARGET July Summary The Climate Institute supports the intent of the Coalition s policy on soil carbon, i.e. to improve the condition of Australian soils and draw carbon down out the atmosphere. 1 We agree that restoring the health of the soil should be a national goal regardless of its role in climate change. The Coalition is advocating the use of soil carbons [sic] as a central plank in their climate change policy. Essentially, the Coalition proposes that the public pays landholders for every extra tonne of carbon they store in Australian soils, up to 85 million tonnes by The Coalition proposes to start by purchasing 10 million tonnes in They cite a payment to farmers of approximately $10 per tonne. Our analysis suggests that, unfortunately and for the reasons outlined below, the Coalition s policy is unlikely to achieve the level of abatement suggested and the Institute cannot include it in our Pollute-o-meter modelling exercise: > The Pollute-o-meter aims to measure a policy s contribution to achieving ambitious, internationally compliant targets for Australia. Under the Kyoto Protocol, Australia has elected not to account for soil carbon in its pollution reduction target. This is unlikely to change in the near future. It is in Australia s interests to remain part of an international, rules-based effort to avert dangerous climate change. > It is very difficult to cost-effectively measure and monitor changes in soil carbon and attribute these to land management actions, and hence properly reward landholders. > It is very difficult to separate natural and managed changes in soil carbon. Soil carbon levels are very sensitive to heat and rainfall, and, under Australian conditions, can swing wildly from year to year. In 1990, for instance, Australia s grazing land was a net carbon sink, while in 2007 during the last drought - it pumped around 250 Mt of carbon dioxide back into the atmosphere. This is more than the total carbon released from all of Australia s fossil fuel electricity generators in > It is very difficult to guarantee the permanence of carbon sequestered in soils, especially in an increasingly hostile climate. Under current rules, the Australian taxpayer would be liable for any reversal of soil carbon sinks in the future. > All of these risks and uncertainties, together with opportunity costs, the costs of compliance, and the costs of extra farm inputs, limit the returns to landholders. Estimates of a competitive price for soil carbon vary, but a $10/tonne payment is almost certainly far too low to secure widespread uptake and hence abatement is likely to be much lower than projected by the Coalition. This is not to suggest that soil carbon cannot play a part in avoiding climate change, even if it cannot yet be counted towards Australia s target, only that the Coalition s proposal is premature. Page 1 of 8

2 Note that the Institute cannot model the Greens commitment to mandatory accounting for forest management for the same reason. The Climate Institute is open to innovative and practical policies that would see farmers and other landholders properly rewarded for practices that actively restore carbon to the landscape. We note that, under the National Carbon Offset Standard, there is now an opportunity for landholders to sell soil carbon on the voluntary market. This is an important first step but additional research, development and extension resources are needed to realise soil carbon s full potential. Introduction The Climate Institute supports all credible efforts to cut pollution in the land sector, draw carbon down out of the atmosphere through biosequestration or green carbon, and build landscape resilience in a time of rapid climate change. We continue to actively engage with farmers, scientists and policy makers on ways and means of encouraging abatement in the Australian landscape. The Coalition is advocating the use of soil carbons [sic] as a central plank in their climate change policy. Essentially, the Coalition proposes that the public pays landholders approximately $10 for every extra tonne of carbon they store in Australian soils, up to 85 million tonnes by The Coalition intends to start with 10 million tonnes for The Coalition s Direct Action Plan gives little detail so we assume that by soil carbons it means carbon in the soil profile, including microbes, fungi, roots, charcoal (including biochar) and humus. This excludes other areas of terrestrial or green carbon management, such as savannah burning, grazing management, avoided deforestation and reforestation. It may include fertilisers (a source of nitrous oxide), but this is not clear. This brief outlines the reasons why, while The Climate Institute supports the intent of the Coalition s policy, we have decided against modelling soil carbon in our Pollute-o-meter exercise. It also explains why the Institute believes it is risky and unrealistic to rely on soil carbon sequestration as a cornerstone of climate policy, especially in the absence of a broad-based price on pollution. Measures to encourage soil carbon sequestration We note that, by virtue of the November 2009 negotiations between the Rudd Government and the Turnbull Opposition, landholders would be eligible to sell offsets into the Government s Carbon Pollution Reduction Scheme (CPRS) based on a wide range of Kyoto-compliant activities, pending robust methodologies. At the same time, landholders would not be liable for their emissions. 2 Regardless of the CPRS, as of July 1,, landholders are eligible to sell soil carbon offsets into the voluntary market under the National Carbon Offsets Standard (NCOS), administered by the Australian Carbon Trust 3 ; again, pending robust methodologies. The Climate Institute believes this is a fair start given the risks and uncertainties associated with soil carbon. The fact that soil carbon is yet not accounted for under Australia s national targets is not, however, a reason not to invest in the science, economics and institutions needed to underpin trading or indeed direct action. The voluntary market drivers for soil carbon are unlikely to be sufficient by themselves to spur private investment. It is in Australia s interests to set aside a significant and enduring pool of public funds for soil carbon research, development and Page 2 of 8

3 knowledge extension to landholders. The Climate Institute regards public investment thus far as a first step but more is needed. The Climate Institute is open to innovative and practical policies that would see farmers and other landholders properly rewarded for practices that actively restore carbon to the landscape. Soils and Australia s international obligations It is in Australia s interests to play an active part in an international, rules-based approach to avoiding dangerous climate change. Australia is likely to suffer disproportionately from the impacts of global warming, and a failure to play by the rules risks undermining the credibility of our domestic abatement efforts and compromising our capacity to take part in the growing global carbon market. Under the Kyoto Protocol Australia signed up to a legally binding target to limit emissions to 108% of 1990 levels. While this target covers the vast majority of emission sources and sinks, Australia has elected not to be accountable for changes in the following terrestrial carbon stocks (section 3.4): > Forest management (the management of existing forests); > Cropland management (soil carbon); > Grazing land management (soil carbon); and > Revegetation (planting vegetation other than forest) This means Australia cannot rely on these to meet its Kyoto Protocol target, but is also not liable for any emissions from these sources. The decision to not count soil carbon towards our pollution target is primarily because of the difficulty in separating avoidable and unavoidable changes, and because of measurement uncertainties (see below). It is also important to note that without a robust and fair way of separating avoidable and unavoidable losses of soil carbon, it would render taxpayers liable for any shortfall in projected abatement due, say, to a drought. International negotiations around land-use, land-use change and forestry (LULUCF) are ongoing, and Australia is evidently taking an active part. Ideally, Australia would soon be in a position to count items under section 3.4 of the Protocol towards its targets, with forest management an important and immediate first step. For a variety of reasons, however, it seems unlikely that Australia would agree to account for cropping and grazing land immediately in the post-2012 period. The primary purpose of The Climate Institute s Pollute-o-meter is to measure a policy s contribution to achieving ambitious international targets for Australia. Under the current rules, any abatement achieved through soil carbon management would have to be considered additional to Australia s international obligations. Moreover, there are good reasons to be conservative in any estimate of this additional abatement potential. For the purposes of the Institute s Pollute-o-meter modelling exercise, we must assume the international rules will stay the same and reward parties for electing forest management in the Institute s star rating system. Note that The Climate Institute has not been able to model the Greens commitment to mandatory accounting for forest management for the same reason. Page 3 of 8

4 Measurement difficulties and uncertainties The Climate Institute supports abatement additional to that accounted for under the Kyoto Protocol. We are encouraged by landholders and scientists work towards cost-effective soil carbon management, measurement and monitoring techniques. Governments, state and federal, have already invested substantial funds towards resolving uncertainties and improving scientific understanding of soil carbon under Australian conditions. As a rule, these efforts deserve the support of all parties, and indeed should be ratcheted upwards. However, reliably measuring and monitoring changes in soil carbon across perhaps tens of thousands of individual properties, with the rigour demanded by the use of public funds, is likely to prove very expensive and difficult in practice. To begin with, carbon sequestration in soils can vary substantially across the landscape with soil type, rainfall and temperature. There are still large gaps in scientists understanding of the response of Australian soils under different management regimes. 4 A practice that in one area builds carbon may even erode it in another part of the country. 5 This, coupled with the sensitivity of soil carbon levels to rainfall and temperature, makes it difficult to link land management practices to abatement, and hence to properly credit (or debit) landholder actions. The Climate Institute is concerned that abatement via soil carbon may not be reliably, rigorously or cost-effectively measurable at this stage. Until these concerns are resolved, improved soil carbon cannot be counted as a legitimate abatement activity, at least not without a significant discount factor to account for the risk of mismeasurement, and certainly not towards Australia s target. The use of proxies for actual abatement - such as management practices known to increase soil carbon stocks under favourable conditions - may prove a reasonable alternative to direct measurement in the future. This is an avenue that deserves further work. The Institute understands, however, that the science needed to underpin even this approach is still immature. In any case, it would still carry a significant element of risk that would have to be factored into the carbon price and would inevitably mean a lower return to the landholder. Landholders pooling their efforts, and so spreading the risks, may reduce the costs of measurement. This is another option worth exploring in any direct subsidy (such as the one advocated by the Coalition) or market-based approach (such as the National Carbon Offset Standard) to soil carbon. Several challenges remain, however, including the administratively complexity and cost to the taxpayer of directly purchasing abatement. Meanwhile, the cost to the public purse of monitoring and verifying abatement on potentially tens of thousands of properties (or even thousands of grouped enterprises) would be substantial. Variability and permanence risks The big factors influencing carbon in Australian soils are rain and heat. 6 Given Australia s already highly variable climate it is very difficult to separate natural variation from managed changes. Ideally, soil carbon modelling would distinguish between natural and human influences. In practice, however, this is very difficult to do. The alternative is to assess the combined effect of natural and human factors. This too is fraught with difficulties, because of the level of variation in soil carbon stocks, due to inter-annual variability in rainfall, not to mention potentially unfairly rewarding or penalising landholders. Page 4 of 8

5 The trend in soil carbon in Australia s cropland, for example, varies wildly. For example, while in 1990, Australia s grazing (grass)land was a net carbon sink, in 2007 during the last drought - they released an estimated 250 Mt of carbon dioxide back into the atmosphere (see Figure 1). 7 This is more than the total carbon released from all of Australia s fossil fuel electricity generators in Figure 1: The impact of Australia s highly variable climate on carbon in grassland. Similarly, in 1990 croplands were a net carbon sink, absorbing over 20 Mt from the atmosphere, while 2001 they released an estimated 40 Mt (see Figure 2). 8 Figure 2: The impact of Australia s highly variable climate on carbon in cropland. Moreover, with average rainfall decreasing and temperatures increasing in large parts of the country the risk is that, despite landholders best efforts, carbon will become harder to build up and hold in the soil over long periods. 9 Indeed, the evidence already suggests that soil carbon stocks may prove quite fragile under global warming scenarios. 10 Hence it is very hard to guarantee the permanence of abatement. Page 5 of 8

6 The risk of reversal (i.e. the loss of sequestered carbon) would, again, have to be factored into the price. To avoid asymmetrical accounting and unfairly burdening taxpayers, the landholder would have to be penalised for any avoidable losses of carbon. Realistically assessing the potential for abatement with soil carbon There is considerable and understandable interest in the rural sector in the notion of trading or being paid for carbon sequestered in soils under cropping and pasture. The Climate Institute shares this interest but it is important to be realistic about the economics and the actual potential of Australian farmland to permanently sequester large quantities of carbon. Some are encouraged by high abatement levels apparently achieved in some parts of the farmlands in North America and Europe. However, we would urge caution and critical thinking when extrapolating overseas examples to Australia, with its highly variable rainfall and temperatures. While some landholders have clearly achieved impressive results with innovative and careful soil carbon management, it is by no means clear that these can be universally applied with the same results. Indeed, results can vary significantly across space and time. 11 Moreover, the sorts of extraordinarily sequestration rates suggested by some proponents of soil carbon are hard to confirm scientifically and are likely to be much lower than claimed. 12 In a report to the Queensland Government, CSIRO estimate the potential to build soil carbon storage (and mitigate nitrous oxide emissions) to be around 25 Mt/year to 2050 in Australia s cropland. 13 This revised down the potential reported in the Garnaut Review, which is perhaps a reflection of the uncertainties. It is important to note, however, this is the biophysical and not the actual potential, which would be limited by economics and practical realities. CSIRO are at pains to make it clear that their estimate is an optimistic one and suggest that the actual potential for Australian cropland is more likely to be around 2.5 Mt/year. 14 CSIRO also estimate that rehabilitation of the rangelands from reduced stocking and pasture improvement might sequester as much as 100 Mt/year, but this figure is inherently uncertain and includes carbon in woody vegetation and pasture. In a recent report for conservation organisations, the Nous Group, estimated an abatement potential for the rangelands of around 26Mt/year by 2020, or around 4% of business-as-usual emissions. 15 This is certainly impressive but it is worth noting that Nous did not assess soil carbon because of a paucity of reliable data. This would seem to lend support to Australia s decision not to account for soil carbon. It is difficult to assess the Coalition s projected 85 Mt/year abatement by 2020 in soils. We do not doubt that this is probably attainable in purely biophysical terms, at least in the rangelands. The question, remains, however is it actually attainable at the carbon price suggested by the Coalition? What price soil carbon? It seems that, in many instances, building up soil carbon goes hand in hand with improved or at least sustained productivity over the long-term, though is by no means straightforward, with concerns being raised about the trade-off between extra soil carbon and profit. 16 Page 6 of 8

7 Depending upon the local geography and the production system in question, building up soil carbon can require a considerable increase in fertiliser and organic inputs meaning a substantial cost to the land manager. With the price of fertilisers, food and fuel all on the rise, it seems that the costs of inputs, together with opportunity costs are likely to rise. The Coalition cites submissions from farm groups suggesting that a carbon price of $10/tonne will secure 150 Mt/year of abatement by Recent estimates of the carbon price needed to secure widespread adoption of soil conservation/restoration practices vary widely: > In a recent cost curve developed for ClimateWorks Australia, McKinsey & Co. suggest that reduced tillage and improved fertiliser management would actually incur a net saving to farmers of $75/tonne but save only 1 Mt of CO 2 e (carbon) by On the other hand, measures to improve pasture and grassland management, restore degraded cropland and rangelands could abate (a total of) 25 Mt/year by 2020, but the estimated cost ranges from $5/tonne for improved pasture and grassland management to $25/tonne for cropland sequestration, to $94/tonne for rangeland rehabilitation. 17 They make a number of assumptions, all of which are subject to uncertainties. > In a report for Dairy Australia, David McKenzie estimates that for soil carbon to be an economically attractive option for a dairy farmer a price of around $200/t would be needed, given the opportunity and extra input costs of permanent sequestration. 18 > While not citing a carbon price as such, the New South Wales Department of Primary Industries suggests that, for the rangelands, the cost to beef producers of reducing grazing pressure at around $85/ha and treatment for pasture improvement at between $100 and $700/ha (repeated every few years). Both management actions are key to permanently sequestering carbon in the soil. 19 Given CSIRO s estimate of the potential for sequestration in rangeland soils at less than 0.5 t/year/ha, the carbon price would seem to need to be in the hundreds of dollars to be economically attractive to a beef producer. Clearly, there is little certainty around an appropriate, economically attractive price for producing soil carbon in Australia s cropping and grazing country. Many factors influence the actual marginal cost of abatement and these will vary dramatically around the country. These estimates do suggest, however, that the $10/tonne cited by the Coalition is unlikely to secure the high rates of participation required to achieve 85 Mt/year of abatement by This is not to suggest that some landholders would not take up the opportunity were it offered at that price; some would but most would probably not. The discounts needed to cover abatement and measurement uncertainty, the opportunity and input costs for farmers, and the transaction costs associated with directly buying credits from tens of thousands of landholders, would all seem to cast doubt on the credibility of $10/tonne as a competitive price. References and endnotes 1 The Coalition.The Coalition s Direct Action Plan: Environment & Climate Change. 20Plan%20Policy.pdf (accessed 13/07/10) 2 Department of Climate Change & Energy Efficiency. Details of Proposed CPRS Changes. Australian Government. (November 24, 2009) (14/07/10) 3 Department of Climate Change & Energy Efficiency. National Carbon Offset Standard. Australian Government. (accessed 14/07/10) Page 7 of 8

8 4 S. Bruce, et al. Soil Carbon Management and Carbon Trading. Science for Decision Makers. Australian Government Bureau of Rural Sciences. (March 2009) 5 F. Valzano, et al. The Impact of Tillage of Changes in Soil Carbon with Special Emphasis on Australian Conditions. National Carbon Accounting System Technical Report No.43. (January 2005) 6 S. Bruce, et al. (March 2009) 7 Department of Climate Change &Energy Efficiency. Net CO2-e Emissions (Gg) for AUSTRALIA from Grassland remaining Grassland. UNFCCC Inventory. (accessed 14/07/10) 8 Department of Climate Change &Energy Efficiency. Net CO2-e Emissions (Gg) for AUSTRALIA from Cropland remaining Cropland. UNFCCC Inventory. (accessed 14/07/10) 9 S. Bruce, et al. (March 2009) 10 L. A. Schipper, et al. Changes in total carbon and nitrogen in New Zealand pasture soils during the past 20 years. Global Change Biology 13 (2007), ; P.H. Bellamy, et al. Carbon losses from all soils across England and Wales Nature 437 (September 8, 2005), P.G. Grace. Carbon farming facts and fiction. Powerpoint presentation to the Healthy Soils Symposium (July 4, 2007) 12 D. McKenzie, with W. Mason. Soil Carbon Sequestration under Pasture in Australian Dairy Regions. Dairy Australia. (February ) (accessed 14/07/10) The authors note that the increased risk of environmental damage from the use of extra fertilisers. 13 S. Eady, et al. (eds.) An Analysis of Greenhouse Gas Mitigation and Carbon Biosequestration Opportunities from Rural Land Use. CSIRO. (August 2009) 14 Noted in Department of Climate Change. Analysis of Coalition Climate Change Policy Proposal. Australian Government. (February ). (accessed 15/07/10) 15 The Nous Group. Outback Carbon: An assessment of carbon storage, sequestration and greenhouse gas emissions in remote Australia. A report to the Australian Conservation Foundation, the Pew Environment Group Australia and The Nature Conservancy. (April ) 16 D. McKenzie (February ) 17 ClimateWorks Australia. Low Carbon Growth Plan for Australia. (March ) (accessed 13/07/10) 18 D. McKenzie (February ) 19 NSW Department of Primary Industries. Summary of gross margins for NSW beef enterprises. New South Wales Government. (June 2009) cited in Department of Climate Change. Analysis of Coalition Climate Change Policy Proposal. Australian Government. (February ). (accessed 15/07/10) Page 8 of 8