Sequestration. ti Mitigation. Water. Vegetation

Transcription

1 The implications of the Carbon Farming Initiative for the grains industry.

2 Atmosphere Sequestration ti Mitigation Vegetation Soil Water

3 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 ACCU for each tonne of emission abatement. The two are linked because emitters will need to purchase emission permits, including those earned by farmers voluntarily participating p in the CFI.

4 Year 1 cost ETS Scope 1 emissions Company (ignoring (g g EITE) (t CO 2 -e) $ A J Bush & Sons 109,012 $ 2,507,276 Arnotts Biscuits 28,982 $ 666,586 Baiada Pty Limited 134,785 $ 3,100,055 Bega Cheese Limited 41,346 $ 950,958 Burrup Fertilisers Pty Ltd 1,538,899 $ 35,394,677 Delta Electricity 20,453,113 $ 470,421, Goodman Fielder Limited 75,569 $ 1,738,087 Heinz Watties Pty Ltd 44,410 $ 1,021,430 Incitec Pivot Limited 987,302 $ 22,707,946 Inghams Enterprises 71,831 $ 1,652,113 Lion Nathan National Foods 103,998 $ 2,391,954 Murray Goulburn Co-op 145,795 $ 3,353,285 Fonterra 175,808 $ 4,043,584

5 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 projects (Kyoto protocol compliant) Emission i permits required 17,000 Permits from International projects

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8 The Carbon Farming Initiative (CFI) Projects operated in accordance with approved Methodologies. Key requirements; Additionality Permanence (100 years) for sequestration No leakage Scientific validity Measureable and verifiable Conservative assumptions Audited and verified by 3 rd party. Five methodologies approved, 14 being considered.

9 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 Voluntary carbon market. Individuals offsetting emissions. Carbon-neutral claims Government.

10 CER & EUA prices

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

12 Soil carbon changes with management. Soil C lev vels Commence cropping Convert from cropping to perennial pasture Fertiliser et Fertiliser Fertiliser Fertiliser Time

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

14 CFI Project 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 Water entitlement (>600mm) ML/ha/yr (not costed)

15 Case study: High rainfall single species trees Farm of 2,300 ha 10% sown to trees 5% each of first two years Planting costs $2,188/ha Assumed 5% loss of trees replanting costs. Audit every 3 years.

16 Project financial returns/year. $1,000,000 $800,000 $600,000 $400,000 $200,000 $ $200,000 -$400,000 Gross revenue Costs Nett returns

17 Case study: High rainfall soil carbon Farm of 2,300 ha 10% sown down to permanent perennial pastures/year to a maximum of 50%. Pasture establishment costs $175/ha Soil testing (LECO test $103/sample) 1 sample/4 ha whole farm every 3 years. Single super 100kg/ha every two years. Carbon sequestration rate 2t CO 2 -e/ha/yr Voluntary carbon market $5/tonne.

18 Project financial returns/year. $800,000 $600,000 $400,000 $200,000 $ $200,000 -$400,000 -$600, $800,000 Costs Gross revenue Nett returns

19 Modes of cfi participation Direct sale (principal to principal). Broker/aggregator managed project 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

20 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

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

22 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

23 Key messages The CFI may provide an opportunity to generate carbon revenue. Considerable risk associated with CFI projects 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 Government role creating a market for non-kp CFI offsets still uncertain.

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