Farming in a carbon-priced economy implications for farm businesses.

Transcription

1 Farming in a carbon-priced economy implications for farm businesses. Mick Keogh Australian Farm Institute

2 Australian carbon policy The Carbon Farming Initiative (CFI) Implications

3 Mt CO2e Australia s greenhouse emissions % % 5.6% 16.3% 2.7% Stationary Energy Transport Industrial Processes Agriculture Land use, Land use Change & Forestry Waste

4 A future Australian carbon policy? Fixed price carbon tax imposed on electricity generators, fuel from 2012 ($20-$30) Transformed into an ETS by 2015 Covered sector exporters receive graduated concessions ETS expanded to more sectors of the economy post Agriculture able to sell CFI offsets from 2015 Agriculture uncovered to 2015 but then????

5 An emissions trading scheme Government determines coverage, emission target, permit numbers, rules Covered businesses submit annual return, hand back permits Covered businesses estimate emissions. XYZ Corporation Greenhouse Emission Statement Total emissions 1,000 Covered businesses Less purchase permits, offsets (credits ) Offsets purchased 300 Emission permits required 700 Australian emission permits? CFI Offsets

6 Change in farm economic output (%) Projected impacts farm level CPRS cost Processor cost Input costs Source: ABARE ( Five years after a carbon tax /ETS is introduced)

7 Change in farm economic output (%) Agricultural emissions not covered Processor cost Input costs Source: ABARE ( Five years after a carbon tax /ETS is introduced)

8 Impacts vary by sector Impact of carbon cost ($35) - year 5 Beef Sheep Grain Dairy Cotton Rice 10.00% 5.00% 0.00% -5.00% % % % % Cost change (%) Cash income change (%)

9 Impacts reduced if fuel emissions excluded. Impact of carbon cost (No fuel) ($35) - year 5 Beef nf Sheep nf Grain nf Dairy nf Cotton nf Rice nf 10.00% 5.00% 0.00% -5.00% % % % % Cost change (%) Cash income change (%)

10 NSW sheep business cost increases $25,000 Additional farm and processor costs - Medium carbon price $20,000 $15,000 $10,000 Farm Processor $5,000 $- Year 5 Year 10 Year 15 Year 20 Year 25 Year 30 $250k turnover, 3,000 sheep, 700 t grain

11 Change in total farm costs Carbon price farm cost impact. $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 Low $20 Med-CO2-5 High-CO2-15 $- $160 $140 $120 $100 $80 $60 $40 $20 $- Carbon price ($/t Co2-e)

12 Australian carbon policy The Carbon Farming Initiative (CFI) Implications

13 Sequestration Emission Mitigation

14 The Carbon Farming Initiative (CFI) Legislation in place by July, 2011 Offsets produced in accordance with approved methodologies. Key requirements; Additionality Permanence (100 years) for sequestration Scientific validity Conservative assumptions Audited and verified by 3 rd party. Soil carbon voluntary carbon markets Kyoto Protocol accredited offsets mandatory markets

15 Voluntary and mandatory markets Voluntary markets non-compliant with Kyoto Protocol. Companies choose to offset, but not required to. Typically $2 - $5 per tonne. (Soil carbon offsets) Mandatory Markets. Compliance required under legislation. Currently limited to EU, NZ. Offsets must comply with Kyoto Protocol rules. Typically $20 - $25 per tonne. (Permanent tree planting on land that was clear of trees in 1990)

16 Sequestered carbon (tonnes) Permit account Time (years)

17 Assumptions Carbon price 5% CPRS (voluntary = $5) Model beef farms (ex ABARE) ($400k + turnover) Beef processor cost increases based on ABARE modelling. Farm emissions calculated using FarmGAS. No dynamic response to changed input costs.

18 Transaction costs Item Initial accreditation Legal advice (contract) Initial verification Annual statement preparation Annual verification Audit Cost $3,000 one-off cost $2,000 one-off cost $1,500/day one-off cost $1,000/day each year $1,500/day each year $1,500/day every third year

19 Rumen methane mitigation Rumen bolus (360 day) 20% emission reduction Bolus cost $65/hd/year

20 Percentage change in farm cash income Participation in the CFI, $400k+ beef farm, -5% carbon price, bolus achieves 20% emission reduction 0% -20% -40% -60% -80% -100% -120% CFI Mandatory CFI Voluntary Note: Compared to business-as-usual under a carbon tax, no coverage of agricultural emissions.

21 Modelling results (CFI) $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 -$100,000 Carbon tax CFI mandatory CFI voluntary

22 Change in cumulative farm cash income over 30 yrs relative to BAU (no carbon price) Sheep Farm Offset scenario Agriculture covered Mandatory market Voluntary market Agriculture uncovered Mandatory market Voluntary market Pastoral zone, more than $400,000 annual turnover High Rainfall zone, more than $400,000 annual turnover Methane mitigation -52% -61% -31% -40% Environmental plantings -113% -333% -91% -312% Soil carbon sequestration -72% -123% -57% -108% Single species farm forestry 111% -23% 126% -8% Wheat/Sheep zone, more than $400,000 annual turnover Environmental plantings -34% -51% -20% -37% Nitrification inhibitor -32% -32% -18% -19%

23 Australian carbon policy The Carbon Farming Initiative (CFI) Implications

24 Implications A carbon price will have a negative impact on farm profitability Accelerated productivity growth will be the key to retaining farm profitability (in response to climate change or climate change policy). The CFI may provide some opportunity to mitigate additional costs. CFI offsets unlikely to be accepted in the mandatory market during the fixed price phase. CFI offsets are unlikely to be viable for farmers if they can only be sold into the voluntary market.

25 Australia s Independent Farm Policy Research Institute