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Producers urged to be cautious trading carbon credits

Eric Barker, 23/11/2021

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AUSTRALIA’S carbon market has been the source of plenty of hype this year, with the price of carbon credits more than doubling in the past 12 months.

Sequestering carbon in agricultural soils has become an increasingly popular way for producers to gain credits, with some of the country’s largest corporate cattle companies starting new projects and a push for smaller producers to consider it.

But University of Melbourne professor Richard Eckard said producers should consider their own need for carbon credits before selling them.

“When it comes to tree carbon or soil carbon, it’s like a bank account that can accumulate as you grow trees or improve soil carbon,” Prof Eckard said.

“But if you sell your carbon credit to another company, it has gone from your property and possibly out of the industry.

“One day when you need to become carbon neutral, that stock is not available to you but it’s on your land and you need to look after it for someone else.”

Carbon neutrality needed for market access

With companies like JBS committing to become carbon neutral, Prof Eckard said regular producers might have trouble accessing markets if they are not carbon neutral themselves.

“If you are a cattle producer wanting to sell through JBS, well you are under pressure now,” he said.

“It is misleading to talk up the carbon market as something producers can make a lot of money from, without mentioning these other issues.”

Most carbon credits, which have been generated in Australia, have been purchased by the Federal Government’s Emissions Reductions Fund as an Australian Carbon Credit Unit (ACCU).

Prof Eckard said he was still trying to clarify if some of those ACCU’s sold directly to the government could be claimed by industry.

“Sometimes government is using taxpayer money to buy those credits and retire them permanently, that means they haven’t retired them to the coal industry or the power industry,” he said.

“I would argue that can still be claimed by the red meat industry or the farm itself, because there is no double-dipping.

“This is completely different to selling on the voluntary market to an overseas company or selling an ACCU to a power station who submits it to the government to offset its own emissions.”

Baseline carbon data essential

Northern New South Wales producers Hamish and Jess Webb have recently started a soil-carbon project on their property near Uralla. Mr Webb has since become an executive director of the company, Precision Pastures, which helped the pair take baseline soil-carbon data for the project.

Hamish Webb

He said the goal was to make the grazing operation more productive, with carbon credits serving as a fringe benefit.

“We originally contacted Precision Pastures to help us understand some of the limiting factors in our soil and how solve those problems,” he said.

“They came back to us and said there was an opportunity to run a carbon project alongside fixing the soil problems because of the alignment of objectives.”

The Webb’s have decided to not to forward-sell any carbon credits they may generate in the coming years, with plans to make those decisions later.

While the different decisions may suit different operations, Mr Webb said as a producer moving into the carbon market was an obvious choice.

“There’s a growing market for Australian Carbon Credits that meets with productions objectives,” he said.

“Doing things like improving pH with lime, rejuvenating our pastures with broad species and changing our stocking density and timing all have benefits aligning grazing efficiency with soil carbon sequestration.”

Prof Eckard and Mr Webb agree farmers should have baseline soil testing regardless of objectives.

 

 

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Comments

  1. Patrick Francis, 25/11/2021

    While this article raises important points about the need for caution associated with soil carbon credits, there is another key criteria which seems to me would disqualify many livestock farmers from participating. Under Emissions Reduction Fund soil carbon sequestration methodology rules any eligible increases in soil carbon must be a result of adopting a new or changed eligible farming activity. The eligible activities include applying nutrients to land, applying lime or gypsum, sowing new pasture species to re-establish or rejuvenate a pasture, alter carrying capacity or intensity of grazing e.g. rotation and cell grazing, modify landscape or landform to remediate land such e.g. water ponding. All these have been part of the research and extension agendas for farmers for decades. It is hard to believe any current livestock business in the agricultural zone managed for profitability could claim any of these activities were new to their operation.

  2. Natalie Williams, 24/11/2021

    I agree with Greg’s comment that field testing is expensive and various organisations are working towards bringing those costs down which is admirable.
    However, i am interested in how landholders recoup the cost of base-lining without further commercial options for the credits. How are landholders assured that the base-lining they do now will be acceptable/compliant/transferable into future contracts? (If they choose not to engage in contracts now).
    Every contract that i have seen ensures that the landholder is carbon neutral first before selling excess credits, so i am not sure why landholders should fear not having enough credits to cover their own emissions….
    The JBS example…surely in the perfect world, JBS would either have to purchase credits (preferably from the grazier) or from the market to maintain neutrality, if that is what they are wanting in terms of branding etc. Otherwise, wouldn’t it be best to pay the grazier a premium for certified carbon neutral/positive beef and let the market decide the value going forward.
    I am a carbon and natural capital project developer, who takes into account all of the possibilities for the landholders and how the credits (which are complex financial instruments) can best satisfy the financial (and other) goals of the landholder. While soil carbon is a big chunk of credit opportunities, it is not the only method that can be used.
    Natural capital and all its components provide opportunities to landholders to mitigate financial risk, and the co-benefits of focusing on credit options will see vast improvements to soil water and landscape regeneration, production and biodiversity.
    My experience is that landholders are pretty much wanting to improve their land assets, and so leveraging the carbon credit/natural capital options recently made available to them should be encouraged. Having a good understanding and negotiating the commercial obligations of credit contracts is no different to any other contract arrangements.
    Regarding Richards enquiries into whether industry can claim credits from ERF contracts…i am interested in what purpose this serves? Is it for marketing or offsetting reasons that he sees this as important? Some clarity around this would be good.

  3. Greg Campbell, 23/11/2021

    Further points of caution are that field testing to establish baseline soil carbon levels is expensive, and the methods and sample frequency for that testing are still works in progress. Satellite derived proxy measures of soil carbon are also yet to be fully tested and accepted as means of verification on soil carbon levels. New service providers are now establishing and marketing themselves, with widely varying prices and skills. Some charge up front fees, while others seek to take a percentage of any carbon credits which accrue. There could be potential conflicts of interest with the latter form of payment.

    • Bill Burrows, 24/11/2021

      1. Main article – “The Webb’s have decided to not to forward-sell any carbon credits they may generate in the coming years, with plans to make those decisions later”. Having established their baseline (with acceptable accuracy and precision) will their plans include the possibility that at a future date they find they have a soil carbon deficit re the base year? If so would it involve any financial penalty?
      [Just kidding – but I have a list of 25 ways in which to scam ground based sampling or computer modelling estimates of ‘soil carbon credits’. Here is an obvious one – plan to obtain your baseline readings in a severe drought year and measure your flux at the end of a run of good seasons].
      2. Greg – “Some charge upfront fees, while others seek to take a percentage of any carbon credits which accrue”. Bet not too many opt for taking a ‘percentage of carbon credits (or losses?) that accrue!
      3. Carbon dioxide (CO2) worriers say the problem they are concerned about is the increasing amount of the gas in the atmosphere. But a range of research papers published in very reputable scientific journals reveal that the Australian landscape is a net CO2 sink. This is because the flux above the ground – as measured by inversion of spectral sensor data retrieved from satellite platforms (e.g. GOSAT, OCO-2, TanSat) – shows that more CO2 is being absorbed from the atmosphere than is being released to it. [See: https://www.keepandshare.com/doc22/112736/sampling-the-australian-landscape-for-net-emissions-under-the-pa-pdf-757k?da=y ].

    • Peter, 24/11/2021

      Greg’s comments are accurate. Conflicts of interest do occur which leaves the whole carbon measurement process vulnerable to corruption. For example, the commission based model creates opportunities for the accredited carbon assessor (generally the some person who pays the producer funds received from ACCU sold) to manipulate the amount captured to better their commission. Another important point that I haven’t seen discussed much, is the onerous contracts that are mandatory with carbon capture. To get out of these, whatever the reason can mean paying back funds collected from the sale of ACCU’s and predicted ACCU’s for the length of the original contract! Sometimes this is into perpetuity!

  4. Tom Amey, 23/11/2021

    I’m comforted by Richard Eckard’s balanced approach to the C emissions and sequestration debate. Gives me faith as a cattle producer that we are not heading into a helpless position.

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