Creating and Trading Carbon Credits

Ayr 6th February 2013

Overview

• The Challenge

• The Policy Response

• The Carbon Farming Concept

• Carbon Farming – The mechanics

• The opportunities for Landholders

• Risks

• Local Returns

• Carbon Markets

• The Role of Natural Resource Management Agencies

THE CHALLENGE Anthropogenic Global Warming

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Climate Change

• Climate Change is real to us!

– Governments are making policies based on Climate Change being real

– Consumers are making choices based on Climate Change being real

– This makes it real

Climate Change • Climate change is a global

issue

• Requires a global response

• Global Policy Response is the Kyoto Protocol

– International Cap and Trade

– Australia has bipartisan target of 5% reduction of 2000 levels by 2020

Bipartisan target of 160 million tonne reduction by 2020

Sourced form DCCEE website

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THE POLICY RESPONSE The Clean Energy Future

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Domestic Policy Response

Bipartisan target of 5% reduction from 2000 levels

Clean Energy Future

Charge high emitting businesses for

CO2e released

Reward activities that reduce

emissions or sequester carbon - CFI

by including land based credits to be

purchased by companies to offset

Carbon Price

Direct Action Plan

Govt will buy carbon to meet target

Reward energy efficiency on other

business sectors

•Reward activities that reduce

emissions or sequester carbon -CFI

–Land practices

Clean Energy Future

• 300 or so high emitting companies (<25k tCO2e) Must surrender 1 ACCU for each tonne of CO2e emitted

• Companies get ACCUs or certificates by: Compensation (free) from the Government

Purchase from the Government auction system

Purchase from the secondary market

Purchase from the domestic and international offset market* *international purchasers only after 2015

• 3 year fixed price ($23+/tCO2e)

• 2015 - move to full ETS - one way linkage with Europe ETS

• 2018 - full linkage with EUETS

• 1 Australian Carbon Credit Unit (ACCU) = 1 tonne CO2e

Price on Carbon and Agriculture

– Agriculture is excluded from a price on Carbon

– Farmers will pay a price on carbon through increase costs of inputs

• Diesel, Electricity, transport, steel, chemicals, fertiliser, plastics

– Farmers will pay a price on carbon through increase costs of processing

• Transport, handling and processing costs to rise

• Many farmers expect Agriculture to be a covered sector eventually

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Clean Energy Future and the CFI

• Carbon Farming can create “offsets” that Liable entities can use instead of paying tax

• CFI linkages to carbon price 5 % of emissions as offsets during fixed price

period; 50 million tonnes in fixed price period/$1.25 Billion

• Land sector credits can be exported

THE CARBON FARMING CONCEPT The Carbon Farming Initiative

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• Voluntary

• Bipartisan approval

• Not Carbon Vs Farming

• Is Carbon and Farming

• Not Competitive but Complimentary

• Most actions will – Prepare you for predicted climate

change

– Provide revenue to offset rise in input cost

– Reduce your exposure to carbon price

– Increase property productivity

Carbon Farming Initiative

Integrated Carbon Farming

Manure management Fertiliser

management

Revegetation

Soil carbon

Crop residue

management

Landholder

PROJECTS Farming Income

Carbon income Cross

production benefits

$

$

$ =$

See carbon as a part of farm business •Ensure carbon is a part of the long term management objectives •Incorporate into whole farm plan •Identify long term risks and obligations/limitations to farm management

Manure management

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Paddocks of gold or get rich quick scheme?

Carbon Farming is a policy construct

driven by factors not common to ag

not weather, commodity demands, global trade

Carbon Farming takes time

turning around ecosystem processes

changing embedded farming practices

THE MECHANICS Carbon Farming Initiative

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Carbon Farming Initiative - Key concepts

• What is the change in carbon associated with that parcel of land that can be attributed to a change in management.

• What is the net effect on the atmosphere? • How can I measure and report on that change? Is my

method backed by science and consistent with international rules

• Is it beyond business as usual, is it additional • Is it a permanent change- can it be reversed? • Can every carbon credit issued must be backed by the

same amount of carbon on site?

Carbon Farming Initiative

The CFI is based on the following integrity standards:

• Additional - would it have happened in the absence of

the scheme?

• Permanent - is the abatement permanent?

• Avoidance of leakage

• Measurable and verifiable

• Conservative

• Internationally consistent

• Supported by peer reviewed science

Some general rules for CFI

• Methodologies spell out how to manage a project Different methodologies for different project types

Monitoring, calculations, reporting etc

Must meet all regional NRM plans and other statutory plans

Sequestration projects Notification of consent of all land parties

Notification of project on land title

Risk of Reversal Buffer – 5% of issued credits

• Within the scope of the CFI – Land based activity described in the regulations

• Be on the Positive list

• Not on the Negative List

• Have an approved methodology – Meet the methodology eligibility criteria

• Eg fertiliser efficiency - no drop in yield – Reforestation – PEP – mix of species, no grazing for 3 years

– Savannah burning - areas over 1km2 , areas over 1000mm

Eligibility

Positive and Negative list

• + Dynamic list of project types that automatically qualify for additionality.

– E.g. Permanent environmental plantings

– Common practice test can determine additionality

• - Dynamic list of projects that are automatically disqualified

– E.g. no weed species

– for harvest plantations in areas with rainfall over 600mm • Unless for salinity control, or

• An equivalent water right is held for water interceptions

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Positive and Negative list establishes approved and

prohibited activities

Methodologies provide rules for undertaking

activities

CFI provides framework for reporting, auditing and

certificate issue

Methodologies under consideration •Avoided emissions from diverting waste from landfill through a composting alternative waste treatment technology •Diverting waste to an alternative waste treatment facility •Measurement-based methodology for Farm Forestry Projects •Another 20 under consideration

Approved Methodologies •Permanent Environmental Plantings •Avoided emissions from diverting waste from landfill for process engineered fuel manufacture •Destruction of methane from piggeries using engineered biodigesters •Methane Capture and destruction from landfill •Methane Capture and destruction from piggeries and Dairies •Landfill diversions •Savannah Burning •Human-Induced Regeneration of a permanent even-aged native forest •Afforestation and Reafforestation

Generating carbon credits

Check project eligibility and

viability

Does a methodology exist

Is it in positive or negative list

Compare land uses / management

practices

Register as a eligible entity

Prepare documentation and

apply to be a registered offset

entity

And ANREU account

Submit documentation to CFI Administrator

Register Project

Maps, models, documentation

plans etc

Obtain notification of consent,

notification on title, conformity with

statuary

Submit project application to

Scheme Administrator

Monitor Report and Verify your

project

Monitor the abatement or

sequestration and emissions from your

project

Prepare report for CFI administrator (e.g. monitoring, models, data etc)

Have your reports verified by a third

party auditor

Create and Trade your

Credits

Apply for credit issuance from CFI

administrator

Receive credits and trade or hold

Maintain your carbon on site

(sequestration only)

Compliance, termination and

transfer

Emissions Soil carbon depletion Non Kyoto vegetation Feral animal emissions

Sequestration/Abatements

Soil carbon sequestration

Non forest veg management

Improved forest management

CFI Credit streams

Kyoto CFI Credits

Non Kyoto CFI Credits

Emissions Deforestation Livestock emissions Nitrogen in agricultural soils/rice Burning of savannas

Sequestration/Abatements

Reforestation

Manure management

Fertilizer management

Avoided deforestation

Livestock emissions mitigation

Early season Savannah burning

• Credits created after abatement or sequestration

• Credits issued after reporting and verification

• Reporting Periods from 12 months to 5 years

• Land sector credits can be exported

• Sequestration has a long term maintenance obligation

– must back every issued certificate with an equivalent tonne of carbon on site

• Certificates have no expiry date –can be banked

CFI –key points

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• 80% clear of vegetation on 31/12/ 1989 or legally cleared after 1990

• clear for at least 7 years prior to planting • revegetated after 1/7/2007 • revegetated by human induced methods • canopy over 2 meters and 20% closure at maturity • area greater than 0.2 Ha

CFI Forestry Rules

Harvesting is treated as an emission

10 years to recover from fires and

depletion events

Carbon must remain on site for 100 years

THE OPPORTUNITIES FOR LANDHOLDER

Carbon Farming Initiative

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Common Land Based Greenhouse Gasses and Global Warming Potential

GAS Symbol GWP

CO2e

Common Source

Carbon Dioxide

CO2

1 1

Fuel emissions, vegetation

burning

Methane CH4 25 25 Livestock

Nitrous Oxide N2O 300 300 Fertiliser

CFI - Opportunities

Native Planting Agro Forestry Improved forest management Soil carbon sequestration SINKS HAVE A MAINTENANCE OBLIGATION

Fertiliser and manure management Reduction of enteric fermentation Avoided deforestation Crop residue management Rice emissions management Legacy landfill emissions Waste management Savannah burning management Feral Camel Culling

SOURCES SINKS

Break down of Agricultural emissions

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Enteric fermentation Manure management Rice cultivation Agricultural soils Prescribed burning of savannahs

Field burning of agricultural residues

Mt CO2-e

Source: CIE (2010), ABARES (2010), DCCEE analysis.

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MtC

O2

e

Millions of t/CO2e abated in 2020

High

Low

Low uptake - 6 million tonnes abatement in the year 2020 ($134M@$20) High uptake - 22 million tonnes abatement in the year 2020 ($425M @$20)

Horticultural Opportunities

• Possible opportunities

– Nitrous Oxide abatement

• Fertiliser efficiency

• Soil carbon

– Mulching strategies

• Waste diversion

– Biomass to energy production

Sugar industry opportunities

• Fertiliser efficiency

– Reduce loss of nitrogen to the atmosphere

• Soil Carbon

– Store carbon in soil

• Bio-fuels

– Shell and BP

– Brazil and Argentina

• Bagasse bio digestion

Fertiliser Efficiency

• On positive List

– Emissions reduction project

• Methodology not close

– Eligibility criteria - not determined

– Monitoring and verification not determined( hard to cost)

• Cannot have adverse outcomes

– No drop in yield

Broad Acre Cropping / Grazing Opportunities

• Fertiliser efficiency – Sub surface – Urea inhibitors – Variable Rate Technology

• Soil Carbon sequestration

• Forestry – Windbreaks – Erosion control – Salinity control – Natural regeneration

RISKS Carbon Farming

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Risks - there's plenty of them • Political

– Coalition has “Blood Oath” - to repeal Carbon Tax

– This will affect demand – CFI has bipartisan support and

will continue – Coalition government would

purchase credits to hit 5% target

• Price Risk – Markets are volatile due to

risk – Prices can vary dramatically

• On Farm Risks – New management practices,

new technologies – Project risks, delivery ,climate?

CPRS delayed

No policy

CFI and CEF

announced

Organisational Risks

• Carbon Credits are free and proper property

• Brokers/traders/agents/aggregators will need AFSL

– Not landholders

• Contractual and commercialisation risks

– Agency agreements, carbon sequestration rights

– Forward contracts, spot contracts,

Forest sinks effect on property Prices - Asset or liability?

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LOCAL RETURNS Carbon Sequestration – Permanent Environmental Returns

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Ayr 10 hectares MSEP

RMT results

Ayr – 10 hectare MSEP

Project Returns to 2050 CO2e/t

total tonnes C02e - 2050

1,558

average tCO2e/project/yr

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Project Returns over 100 yrs CO2e/t

total tonnes C02e - 100 yrs

1,989

average tCO2e/project/yr

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Additional resources

• www.climatechange.gov.au/cfi – CFI handbook

– Guidelines and templates

• http://www.cleanenergyregulator.gov.au/Carbon-Farming-Initiative/Participants/Pages/default.aspx – Forms and guidelines

• www.dpi.vic.gov.au/agriculture/farming-management/weather-climate/understanding-carbon-and-emissions/making-cents-of-carbon-and-emissions-on-farm – making cents of carbon and emissions on farm

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Ben Keogh Managing Director Australian Carbon Traders p (03) 5470 5722 e ben.keogh@australiancarbontraders.com www.australiancarbontraders.com