Australian carbon policy: Implications for farm businesses

Transcription

1 Australian carbon policy: Implications for farm businesses

2 Australian carbon policy Carbon markets and prices Some CFI case studies Farm business implications Key messages

3 Atmosphere Sequestration Mitigation Vegetation Soil Water

4 The Clean Energy Futures legislation aims to reduce emissions by requiring large emitters to pay for an emission permit (ACCU) for each tonne of emissions they produce. The Carbon Farming Initiative aims to create incentives for farmers to undertake projects to reduce atmospheric greenhouse gases, earning an emission permit for each tonne of emission abatement. The two are linked because emitters need to purchase emission permits, including those earned by farmers voluntarily participating in the CFI.

5 A new market and a new currency There are 6 greenhouse gases, each with different warming potentials. Their combined warming effect is expressed in terms of the warming effect of carbon dioxide. The new currency is carbon dioxide equivalents (CO 2 -e) 1 tonne NO 2 = 298 tonnes CO 2 -e 1 tonne CH 4 = 25 tonnes CO 2 -e The term carbon usually refers to CO 2 -e

6 There is no such thing as a greenhouse emission meter. All emissions are estimates based on standard calculation methodologies. Energy source Emissions Petrol (1 litre) 2.3 kg CO 2 -e Diesel (1 litre) 2.7 kg CO 2 -e Coal (1 tonne) 2.39 t CO 2 -e A carbon market is one created entirely by Government, and subject to rule changes as Government sees fit. Carbon markets are subject to considerable sovereign risk

7 Australian carbon policy Clean Energy Futures Act made illegal for covered-sector emitters (more than 25,000 tonnes CO2-e) to release emissions without a permit from July Fixed price permits (ACCUs) cost $23 (+). Was to be transformed into a market-based ETS in 2015, when Government would limit permit numbers, but not set permit price. Also to be linked to international carbon market from 2015 (50% limit) Covered EITE exporters receive free permits. Agricultural emissions excluded.

8 Australian carbon policy Fuel emissions taxed via adjustments to fuel tax, fuel rebates. Petrol and fuel for non-commercial vehicles excluded from tax. Fuel for railways, airlines, mining taxed from 2012 Heavy vehicle diesel taxed from 2014 (?) Farm, forestry fishing (off-road) fuel exempt. Fuel arrangements reviewed 2014/15

9 Alternative policies Coalition s Direct Action Plan Tender-based policies, allocating around $1.2 bn per year to projects that provide least-cost mitigation. Large reliance on soil carbon sequestration up to 80 m tonnes year. Baseline and credit system utilising NGERS

10 Australian carbon policy Carbon markets and prices Some CFI case studies Farm business implications Key messages

11 An emissions trading scheme Government determines coverage, emission target, permit numbers, rules Covered businesses submit annual return, retire permits Trade spare permits Covered businesses estimate emissions, reduce if possible. XYZ Corporation Greenhouse Emission Statement Total emissions 30,000 Covered businesses purchase permits Less CFI permits purchased 3,000 Int. permits purchased 10,000 Australian Emission Permits Permits from CFI Offset projects (Kyoto protocol compliant) Emission permits required 17,000 Permits from International Offset projects

12 Kyoto-Protocol offsets Eligible forestry Emission mitigation from livestock, N fertiliser Mandatory carbon market Businesses involved in the ETS Avoided deforestation Non Kyoto-Protocol offsets Soil carbon (changing in 2015) Voluntary carbon market. Individuals offsetting emissions. Carbon-neutral claims Government.

13 EUA carbon prices European carbon price currently around $A 10 per tonne.

14 Australian carbon policy Carbon markets and prices Some CFI case studies Farm business implications Key messages

15 The Carbon Farming Initiative (CFI) Offsets produced in accordance with approved Methodologies. Key requirements; Additionality Permanance (100 years) for sequestration No leakage Scientific validity Measureable and verifiable Conservative assumptions Audited and verified by 3 rd party.

16 Approved methodologies Agriculture (livestock, soil carbon, fertilisers, feral animals) Destruction of methane generated from dairy manure in covered anaerobic ponds Destruction of methane from piggeries using engineered biodigesters Destruction of methane generated from manure in piggeries Vegetation (regrowth, reforestation, avoided clearing and harvest) Environmental Plantings Human-Induced regeneration of a permanent even-aged native forest Reforestation and Afforestation Savanna burning Landfill and alternative waste treatment (AWT) Avoided emissions from diverting waste from landfill for process engineered fuel manufacture Capture and combustion of landfill gas Capture and combustion of methane in landfill gas from legacy waste: upgraded projects Diverting waste to an alternative waste treatment facility

17 Methodologies proposed Agriculture (livestock, soil carbon, fertilisers, feral animals) Sequestration of soil carbon Reducing greenhouse gas emissions in milking cows through feeding dietary additives Vegetation (regrowth, reforestation, avoided clearing and avoided harvest) Carbon sequestration through afforestation and/or reforestation of degraded mangrove habitats using the CFI reforestation modelling tool and sampling techniques for soil organic carbon Measuring carbon sequestration by permanent plantings of native species using in-field sampling Quantifying carbon sequestration by permanent plantings of native mallee eucalypt species using the CFI reforestation modelling tool Rangeland restoration projects Measurement-based methodology for farm forestry projects Native forest from managed regrowth Native forest protection projects Quantifying carbon sequestration by permanent tree plantings on marginal agricultural land using sampling techniques Landfill and alternative waste treatment (AWT) Avoided emissions from diverting legacy waste from landfill through a mechanical processing and separation, and enclosed aerobic composting AWT facility Avoided emissions from diverting legacy waste from landfill through a mechanical separation, autoclaving and composting AWT facility Avoided emissions from diverting waste from landfill through a composting AWT technology

18 Sequestered carbon (tonnes) Permit account 600 Long Term Rainfall Water entitlement Ha/yr mm 0.9 ML mm 1.2 ML mm 1.5 ML 900-1,000 mm 1.8 ML > 1,000 mm 2.1 ML Time (years)

19 Soil C levels Soil carbon changes with management. Commence cropping Convert from cropping to perennial pasture Fertiliser Fertiliser Fertiliser Fertiliser Time

20 Mitigation projects Credits earned for emissions not created. Based on CFI methodologies Emissions avoided from livestock, livestock wastes, N fertilisers. ACCUs earned annually Project abandonment incurs no C penalties.

21 Project structure ACCUs ACCUs ACCUs LGCs LGCs Feed in Tariff

22 CFI Project transaction costs Item Project design Initial accreditation Legal advice (contract) Annual statement Annual verification Finance cost Audit Cost $5,000 one-off $3,000 one-off $5,000 one-off $1,000 yearly $1,000/day yearly 8% p.a. $3,000 every third year

23 Carbon price scenarios

24 High rainfall single species trees 100 hectares sown to trees (50 ha per year) Planting costs $2,300/ha (incl. 5% loss) Assume weed/pest/fire management costs remain constant. Audit every 3 years.

25 Project financial returns.

26 Project financial returns

27 Australian carbon policy Carbon markets and prices Some CFI case studies Farm business implications Key messages

28 Modes of CFI participation Direct sale (principal to principal). Broker/aggregator arranged sale Commission basis Share credits basis Service provider basis Land lease arrangement Land leased to aggregator with caveat. Pooled credits arrangement. Participation in a managed pool with multiple credit providers

29 Direct participation Issue Pros Cons Start-up costs Administration Management Price risk Financial/Tax Self-managed economies likely Cost-savings Greater control Proximity Economies likely Self-managed Integrated into business Off-farm income High initial costs and not immediately tax deductible Responsibility Complexity Responsibility New enterprise learning required Volatile C market Uncertainty long-term Set-up deductible at 7% p.a. Not Primary Production CGT implications

30 Aggregator share credits Issue Pros Cons Start-up costs Aggregator costs What is reasonable? Administration Aggregator responsibility Mal-administration Management Price risk Financial/Tax Aggregator responsibility? Self-managed Integrated into business Off-farm income Remote management Response to risk Volatile Carbon market Uncertainty long-term Not Primary Production CGT implications

31 Land lease arrangement Issue Pros Cons Start-up costs Aggregator costs N.A. Administration Aggregator responsibility N.A. Management Price risk Financial/Tax Aggregator responsibility Secure income stream Off-farm income less volatile Risk of off-site impacts Aggregator insolvency? No upside with higher C price Not Primary Production income

32 Australian carbon policy Carbon markets and prices Some CFI case studies Farm business implications Key messages

33 Key messages The CFI may provide an opportunity to generate offset revenue, but an offtake agreement is recommended as a key initial requirement. Considerable risk associated with CFI offsets in the short-term. CFI projects are new enterprises; learning required SEQUESTRATION projects have specific issues - permanence Government role creating a market for non-kp CFI offsets still uncertain.

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36 C12 O16 C12 O16 O16 O16 44/12 = 3.67