Rewarding Initiative: Opportunities for Farmers under the Carbon Farming Initiative

Speech at Carbon Farming Conference.

Introduction

I am very pleased to be here today at the Carbon Farming Conference.

I've only just flown in this morning from a major international meeting in Korea - the preparatory meeting for the world's annual conference on climate change that will happen in Qatar in December.  

I can tell you, anyone who still argues that Australia should do nothing about climate change because the rest of the world is doing nothing is either living in a fantasy world or, quite frankly, making things up.

Action on climate change is happening throughout the world - from the European Union to huge regions of China, to major US states like California, to Korea itself.

Across the world, as here in Australia, there is growing recognition of the need to protect farming land, to protect rural industries and to protect regional communities from the devastation of climate change.

The strong attendance here is a clear sign of your interest to participate in the world's emerging carbon markets.

The opportunities, under the Carbon Farming Initiative and other land sector measures in the Federal Government's Clean Energy Future package, are many.

Today I want to focus on those opportunities at a practical level and on how you can reap the benefits.

First, let me take a few moments to put the Carbon Farming Initiative into its broader policy context. There are four planks in our Clean Energy Future plan to cut Australia's carbon pollution.

  • First, a price on carbon pollution. This measure is recognised by economists, businesses and governments around the world as the keystone of any effective, fair and economically responsible response to climate change.

It's not, as the Opposition would have you believe, a cobra strike, a python squeeze, or even an octopus embrace. The threat the carbon price poses to the Australian economy is about the same as that posed by the bunyip - none at all.

The carbon price has been in operation for just over 3 months and the ongoing strength of our economy according to every economic indicator serves to illustrate that the Opposition's scare campaign, and their talking down of the Australian economy, has been completely dishonest.  It's now abundantly clear that contrary to the claims of our political opponents, Australians have nothing to fear from a carbon price.

Just over 300 of our biggest polluters are now paying for the pollution they are putting into the world's atmosphere. The carbon price has corrected what Sir Nicholas Stern, one of the world's most respected economists, has described as the greatest market failure in history: the capacity of polluters to dump unlimited amounts of carbon pollution into the atmosphere at zero cost, no matter how much damage it does to other parts of the economy, and to the environment.

In creating a market-based incentive for big polluters to cut their emissions, we have created a market for others - such as yourselves - to sell them offsets.

  • The second key plank of the Clean Energy Future Plan is promoting innovation and investment in less-polluting types of energy production. We're doing this using funds raised from the carbon price.
  • Third, the Government is encouraging energy efficiency throughout Australia - in our businesses, buildings, public facilities and homes. Reducing energy use saves money on electricity bills while cutting pollution from our energy sector.
  • Fourth and finally, the Gillard Government is creating opportunities in the land sector to reduce greenhouse gas emissions through the Carbon Farming Initiative. This allows farmers and landholders to participate in newly emerging carbon markets through activities that make our land more profitable and more sustainable.

Let's focus on what the Carbon Farming Initiative means for farmers.

The Carbon Farming Initiative is voluntary

There are two points that I want to emphasise at the outset.

First, the Carbon Farming Initiative is a voluntary scheme.  No one is going to make you undertake carbon abatement measures on your land.  What we are offering under the Carbon Farming Initiative are opportunities for farmers who want to take them.

And my second point by way of introduction, and it's related to the first, and that's that no one is asking you to capture carbon as a favour. This Government believes in market mechanisms, and that's why the Carbon Farming Initiative is based on providing the right economic incentives for farmers to get involved in reducing our nation's dangerous greenhouse gas emissions.

What we are not going to do is pay billions of dollars to large companies in the hope that they stop polluting in the future, under what I describe as a fig-leaf of a policy formulated by those who still believe climate change science is ‘crap'. 

What does the carbon price mean for farmers?

Now before I come to practicalities of the CFI, I want to address a couple of points that I understand Mr Hunt made at the dinner last night about the impacts of the carbon price on the farming sector.

In July this year the carbon price came into effect, and for the first time our biggest polluters are now paying for their carbon pollution.

Farmers are exempt from paying a carbon price on emissions from livestock, soils or fertiliser use. Farmers don't pay extra for essentials like fuel for their off-road or light on-road vehicles.

We recognise there may be a modest cost passed on to farmers and other householders. That's why the Government is using more than half the money raised from the carbon price to assist households.

On average, households can expect to see cost increases of around $9.90 per week, while the average assistance is $10.10 per week, paid in the form of tax cuts and direct payments. The actual experience since the carbon price was introduced has shown these projections to be accurate.

A lot has been made of rising electricity prices and the impact on various industry sectors. It's important to keep these cost increases in context.

Let's examine the impact on the most power-intensive sectors of the agricultural sector, such as the dairy industry.

Treasury's estimate of a 10 per cent rise in electricity costs means that dairy farms would see an increase of no more than 0.2 per cent on their total costs. The Government has provided, as well, a substantial grant to Dairy Australia to help farmers improve their energy efficiency to save on power and bills.  

The Government's Jobs and Competitiveness Program also shields farmers from price rises in high-cost inputs such as fertilisers, providing assistance at the rate of 94.5 per cent to the most emissions-intensive.

Taking full account of the impacts of the carbon price, Treasury estimates that output from Australian agricultural industries will continue to grow by 12 per cent between now and 2020.

This doesn't take into account productivity gains we expect through innovative land management practices under the Carbon Farming Initiative.

So those are just a few comments to make clear to you that the carbon price is not having, and will not have, the dire impact on the agricultural sector that the Opposition has been suggesting.

Opportunities under the Carbon Farming Initiative

This brings me to my central theme: Rewarding Initiative.

Australia's landholders and farmers are innovators.

In the early days of settlement, innovation sprang from the necessity of adapting European land management practices to Australia's harsh and highly variable climate.

More recently, an increasingly competitive global market and shrinking profit margins have been key drivers of innovation.

And now, we are driven by confronting the reality of climate change.

Once again, Australia's land sector is being called upon to adapt to the challenge. Under the Carbon Farming Initiative, farmers and landholders who take action to reduce our national carbon pollution will not only be acknowledged; they will be rewarded.

Under the Carbon Farming Initiative, you may be able to earn carbon credits from activities that reduce emissions of greenhouse gases like carbon dioxide and methane, or from measures that sequester carbon dioxide that's already in the atmosphere. Carbon abatement activities being developed for inclusion under the Carbon Farming Initiative include:

  • reducing livestock emissions, for example, by capturing the methane emissions from effluent ponds;
  • increasing the efficiency of fertiliser use;
  • enhancing the carbon stored in agricultural soil; and
  • storing carbon through revegetation and reforestation.

In many cases, the most important benefits of Carbon Farming Initiative projects are the gains made in agricultural productivity and profitability. In real terms, earning carbon credits from these activities will be a bonus.

For example, planting native species sequesters carbon, but shelter belts planted for lambing paddocks can also boost lambing percentages by up to 15 per cent, while the right species mix can improve soils and provide habitat for wildlife.

Methodologies ready for use

Let's turn now to immediate prospects under the Carbon Farming Initiative, from which you could be generating income now or in the very near future.

As you know, there are sets of rules, called methodologies, that explain how to carry out an abatement project and how to measure the resulting reductions in greenhouse gas emissions.

These methodologies are assessed by an independent expert committee, the Domestic Offsets Integrity Committee, to ensure that they are based on sound science and have environmental integrity.

There are four methodologies ready for use. They cover landfill gas capture, environmental plantings, savannah burning and the destruction of methane from piggery manure.

The first offset projects approved by Clean Energy Regulator in August were four landfill gas projects. And just weeks later, the first forward contract for Carbon Farming Initiative credits had been made, with the credits trading at AU$22 each.

Tomorrow I'm visiting a farm near Young to launch the first approved Carbon Farming Initiative project for methane capture from piggery manure. Many other new projects are on the cusp of approval by the independent Regulator, and as we expand the number of methodologies available, carbon farming will increasingly become an integral part of our agricultural economy.

Methodologies in development

There are a large number of methodologies from both the public and private sectors in various stages of assessment. Since April alone, the Domestic Offsets Integrity Committee has released more than a dozen methodologies for public comment. These include proposals for using covered ponds to destroy methane from dairy manure, and assisting the regeneration of native forests.

The Government recently implemented a new process to expedite the assessment of these methodologies, and we expect to see them move through the process more swiftly, without jeopardising scientific or environmental integrity.

While I know it can be frustrating for those eager to get started, you need to know that many of Australia's leading scientists and research institutions are working as hard and as fast as they can. 

And let me be clear: it is vital that the methodologies are scientifically robust. We need real, not fictional, carbon abatement to deal with the threat of climate change.

Furthermore, the value of the carbon credits you produce under these methodologies depends on whether those credits are seen to be credible in domestic and international carbon markets. Like all markets, carbon markets are based on supply and demand. There will be practically no demand for credits that are of doubtful provenance.

For example, there have been criticisms of credits produced under the Clean Development Mechanism in some countries, and consequently these credits are of very little value.

Australia has a fantastic international reputation for integrity, and we need to ensure that excellent reputation also applies to the carbon credits that we produce.

The scientific validity of Australian carbon abatement needs to match the high standard and reputation of Australian produce. So the Australian Government will allow no corners to be cut as we develop Carbon Farming Initiative methodologies. By insisting on robust and verifiable scientific foundations for our methodologies, this Government is ensuring that Australian carbon credits are known around the world for their rock-solid credibility.

Abatement activities must deliver lasting benefits

In this context, I want to make a few remarks now about the issue of permanence, often described as ‘the hundred year rule'.

It is regrettable that the Carbon Farming Initiative permanence rules aren't well understood, particularly by members of the Opposition, because it is exactly this requirement that underpins the market value of the carbon credits you'll be working to produce.

The permanence rules give buyers confidence that carbon credits they are buying represent genuine and lasting reductions in greenhouse gases. There is no demand in carbon markets for credits that do not represent permanent abatement.

I'm sure I don't need to show you the charts showing the trajectory of global greenhouse gas emissions for you to understand that sequestering carbon for only twenty-five years does not mitigate dangerous climate change.

Applying a 25 year rule - as I understand the Opposition have suggested they might - would create worthless carbon credits, because everyone who understands the problem of climate change knows that 25 years of abatement means no more than sweeping the problem of carbon pollution under the carpet for our children to deal with.

The permanence requirement is why the Carbon Farming Initiative strongly discourages tree planting and other abatement activities on land that would displace more profitable long term agricultural uses. Landholders should only consider plantings or soil carbon projects that improve productivity or have benefits for natural resource management.

We recognise that the permanence rules must also be sufficiently flexible to account for the realities of Australia's natural environment and climatic conditions.

Project owners will not be penalised for losing stored carbon through no fault of their own - because of events such as bushfire, drought, pests or disease. In most cases, vegetation and other carbon stores will recover naturally after these events.  If not, landowners must take reasonable action to re-establish carbon stores.  

The permanence rules also allow landholders to cancel their projects and remove carbon stores at any time they choose, by handing back the same number of credits that were issued for the project that is being terminated. 

Landholders can do this by purchasing credits at the prevailing market price or taking them from another project, if they have more than one.

If your children or a future holder of your land decides to use the land for something other than your Carbon Farming Initiative project, then that's a commercial decision that they free to make. 

Soil carbon

I want to take a few moments to discuss soil carbon - a methodology under development and one of great interest to many of you here.

There is broad consensus that land management practices that maintain vegetation cover year round, maximise vegetation growth and minimise soil disturbance are likely to offer opportunities for increasing the amount of carbon stored in the soil. The use of biochar, compost, or manure may also have the potential to increase soil carbon.

We are working hard to progress what we all recognise is a complex matter for scientists and policymakers. Despite some promising early research, the scientific jury is still out on the real, practical abatement potential of soil carbon - and how this abatement can be measured reliably and cost-effectively.

As you would have heard from the Department of Agriculture, Fisheries and Forestry yesterday, the Government is using carbon price revenue to make a significant investment in researching and on-farm testing of new technologies and practices in soil carbon.

I am pleased to be able to tell you that the Government is developing guidelines for measuring changes in soil carbon and that these guidelines will be available during 2013.

The Government is also working to improve modelling of soil carbon to make it easier to estimate how much carbon has been stored, or emissions avoided as a result of improved soil management practices for Carbon Farming Initiative projects.

But as I said before, it is vital that we do not cut corners on this - or any other - methodology. Our most respected scientific body, the CSIRO, is working on the science of soil carbon. It is in no one's interest to rush to a doubtful result. Our scientists must be allowed to do the necessary work to ensure that the soil carbon methodology is scientifically robust. We must do the job properly.

It's easy to be carried away on the Opposition's rhetoric on soil carbon, their miracle cure. And I say that because it represents about half of their fig-leaf policy. But the fact is the hard, scientific evidence does not support their claims. Ben Rose, a scientist in this area who analysed the Opposition's soil carbon policy earlier this year, pointed out that it is really a ‘do nothing' carbon policy that lacks credibility.

To reach just Australia's unconditional (and bipartisan) emissions reduction target of 5 per cent below 2000 levels involves permanently taking over 700 million tonnes of carbon pollution out of the atmosphere between now and 2020. To reach our 2050 objective of 80 per cent below 2000 levels requires reductions of over 17 billion tonnes. It defies both logic and the known science to suggest that Australia could retain one of the highest polluting energy sectors on the planet, be the highest per capita emitter in the developed world and sequester all of these emissions in our soils.

I wish it were otherwise - that the CSIRO research indicated that we could achieve these levels of sequestration in our soils - but research to date does not support that.

I now want to turn to the practical aspects of setting up a Carbon Farming Initiative project, and the carbon market itself.

Setting up a Carbon Farming Initiative project

Many farmers and landholders have already applied for projects under the methodologies that have been approved to date.

There are a couple of things that you must do before you can apply for an offsets project. 

First, you need to apply to the Clean Energy Regulator to become a Recognised Offsets Entity, as only Registered Offsets Entities can carry out projects under the Carbon Farming Initiative.

You also need to open an account with the new Australian National Registry of Emissions Units (ANREU), again with the Clean Energy Regulator, so that you can be paid once you start earning credits.

You can complete both of these steps at the same time.

Once you've applied to become a Registered Offsets Entity and have opened an ANREU account then you are ready to apply for an offsets project.

Projects need to meet certain criteria to be eligible. For example:

  • the project must be covered by a relevant, approved methodology - meaning a methodology that has been made into law as a ‘determination';
  • the project must be on the Regulator's positive list (that is, it must go beyond common practice so that the carbon abatement is genuinely additional to the ‘business as usual' scenario);
  • the project must be undertaken in Australia; and
  • the project must not be an activity that is already required by law.

The Clean Energy Regulator, which has been set up to administer the Carbon Farming Initiative, can assist you in developing project proposals. There is information about the Regulator in your conference packs.

Markets for carbon credits and linkage with Europe

Carbon credits can be sold in carbon markets to businesses that have to pay the carbon price.

Carbon credits can also be sold to organisations that have adopted voluntary climate change targets or to businesses that offer carbon neutral products to consumers. I understand that you had a demonstration of a sale of carbon credits to a business right here at this Conference, when Steve Fieldus purchased credits for his carbon neutral trucking business.

Another example is when you fly on major airlines in Australia and you choose to pay a small amount to offset the carbon emissions from your flight. The airlines then pay the money they collect from passengers to a Registered Offsets Entity for the necessary number of carbon credits.

Under Australia's carbon pricing mechanism, carbon has a fixed price of $23 per tonne in 2012-13, moving to a flexible market price in 2015-16.

And from the 1st of July 2015, the Australian carbon pricing mechanism will be linked to the European Union's emissions trading system. This link will produce the world's largest carbon market and be a major driver of the global transition to a low carbon economy.

We are an open economy and a trading nation. Carbon credits are simply another commodity to be included in our trading relationships with other countries.

Linking means the value of Carbon Farming Initiative units will reflect the shared European-Australian carbon price when the flexible price period commences in 2015-16.

And I can reassure you that all projections show that demand for credits generated under the Carbon Farming Initiative will remain very strong. The Carbon Farming Initiative is projected to provide around 60 million tonnes of abatement between now and 2020. Expected demand for emissions units in Australia between 2015 and 2020 is more than 30 times that.

A word of caution

I would be remiss not to inject a small word of caution and common sense among these bright prospects.

As with any other attractive new business opportunity, we can expect the emerging trade in carbon credits to be in the sights of farmers who want to take the initiative to expand their farming enterprises.

The Clean Energy Regulator has recently published information for people considering investing in carbon farming. This includes an investor check list and guidance for reporting false and misleading claims. You should find a fact sheet in your conference packs.

To provide further reassurance to carbon farming investors, the Government is developing a trade-specific new qualification and an accreditation scheme for carbon brokers. This will make it easier for landholders to get the support and advice they need to make a success of their Carbon Farming Initiative projects.

If you're in any doubt about what you're being told, to contact the Clean Energy Regulator for advice.

Conclusion

Whether you have moved to the country more recently, like Louisa and Michael, or you are second or third generation landholders or traditional owners, you have an affinity for, and understanding of, the land.

Australia's largely urbanised population benefits from your good stewardship and the value you place on managing the land that sustains us all.

I would encourage everyone here to explore the opportunities under the Carbon Farming Initiative that I have outlined today.

I am confident that your continued innovation, in partnership with the Government through its Clean Energy Future plan, will enable us to meet the challenges that climate change poses.

We will, all of us, breathe easier because of it.

Thank you.