August 25, 2021

Farming looks to a carbon cash future

Along with its many challenges, climate change is set to deliver forward-thinking farmers a huge opportunity.

Australian agribusinesses are on the front lines of climate change, with the Australian Bureau of Agricultural and Resource Economics and Sciences estimating that reduced rainfall costs the average farm $30,000 per year.

But being stewards of the land, farmers have also been among the first to respond. The livestock sector’s share of Australia’s emissions, for example, has halved since 2005, thanks to practices that improve productivity while reducing environmental harm.

And therein lies opportunity.

As other industries ramp up their activity to lower emissions, they’re increasingly looking to agribusinesses for ‘carbon farming’ partnerships. The opportunities are diverse: storing carbon in soil, increasing vegetation coverage, and reducing livestock or crop emissions. When managed well, these carbon farming activities can even boost crop yields or stock productivity. By 2030, the National Farmers Federation sees as much as five per cent of the agricultural sector’s value being contributed by payments to farmers for environmental services like carbon sequestration.

Land improvement payments

One of the major appeals of carbon farming is its capacity to enable ‘co-benefits’. The idea is simple and seductive: farmers can access carbon markets and payments for overhauls to their land management strategies.

“There’s no other product for an agribusiness where the farmer can sell the product, which is CO2, but keep the benefit on-farm,” says Louisa Kiely, director of Carbon Farmers of Australia.

Kiely says increasing the proportion of carbon in the soil can result in “improved productivity, better soil structure and better water-holding capacity – going into drought later, getting out of drought sooner.”

Beef producers, for example, could undertake a tree planting program to provide shade for cattle, while grain growers might plant a cover crop in the offseason for soil health. However, they can simultaneously harvest carbon credits for their efforts.

Canny farmers have been conducting these kinds of practices for thousands of years to improve water retention, increase the availability of soil nutrients or worm activity, or control weeds or pests. But it’s only in recent years that they’ve been able to access carbon markets, which can add a cash incentive to defray the labour or other costs associated.

According to Kiely, it’s important that carbon farmers remain active managers of their projects.

“It’s unlikely that you can sequester soil carbon by just locking up the project and walking away from it. Chances are it’ll just get worse and worse.”

Julie Rynski, NAB Regional and Agribusiness Executive, agrees that “ultimately, storing carbon in the landscape is a long term decision. It shouldn’t be taken lightly.”

Depending on the nature of the activity and the market scheme, it may even be possible to access an additional payment for co-benefits. Queensland’s Land Restoration Fund and WA’s Carbon Farming and Land Restoration Program prioritise carbon farming activities that also deliver additional agricultural productivity, support local communities or provide other co-benefits.

Carbon farmers might also find their projects eligible for biodiversity schemes, with the Commonwealth Government currently running a ‘Carbon + Biodiversity’ pilot project.

A new kind of market

The floor of the carbon farming market is set by the Commonwealth, which certifies and purchases Australian Carbon Credit Units (ACCUs) using contracts issued through the Emissions Reduction Fund (ERF)/Climate Solutions Fund (CSF).

ACCUs can also be traded through secondary markets, including to international buyers, and carbon farmers might be able to find higher prices elsewhere in exchange for taking on some of the merchant risk. Larger buyers might also look to contract for long-term carbon reduction projects, which can help farmers plan their management practices years in advance.

For an agribusiness, understanding this new kind of market and all the jargon involved can be a barrier to entry, but there are initiatives and agents to help with everything from soil testing to brokering a deal.

“We encourage landholders to do their homework and get independent advice,” Rynski says.

“If yields look too good to be true, there’s merit in getting across the details. Seek evidence such as independent data from multiple properties, soil types and climate. Ensure you also factor climate related risks into your project planning – the ‘what if’ scenarios like floods or fires or drought and how this might impact carbon stored, and whether credits then potentially need paying back.”

As more and more companies and countries seek to offset their emissions and achieve ‘net-zero’, either voluntarily or by mandate, they’ll be looking to invest in high-quality projects with transparency, strong governance and regulation, and best-practice land management.

Microsoft, for example, is looking to purchase six million tonnes of carbon offsets annually by the end of the decade. As other major corporations join the carbon offset market, the opportunities for Australian farmers to get involved are set to soar.

Carbon measurement the next big step

Through the Technology Investment Roadmap, the Australian Government is aiming to lower the cost of soil carbon measurement to $3 per hectare per year, with satellites and remote sensing technology forming a big part of that ambition.

According to Kiely, current soil measurement techniques are accurate enough, but laborious. The time and costs associated with soil sampling remain a concern for some potential carbon farmers. Government loans for soil carbon testing are available to farmers, but Kiely says that landowners could consider paying for their own in order to control the process and the data.

“It’s very valuable data… It can show you where your carbon is, in which paddock. It’s got some very good management information embedded in it, and I believe that’s important for the farmer.”

Look before you leap

Although farmers may be well-versed in land management practices, independent advice may help with understanding project and contract risks and obligations, and their technical and financial details. Carbon farming is no free lunch: there can be legal and financial consequences for failing to manage projects appropriately.

“Whilst we encourage landholders to investigate the opportunity this new market creates, sellers as well as buyers need to be cautious and informed,” says Rynski.

“Landholders, for example, may want to use ACCUs created on their properties to offset their own agricultural commodities. Once you have sold your own credits, your pathway to carbon neutrality becomes harder.”

As part of the project registration process, landholders are required to seek consent from eligible interest holders including their bank if they have a mortgage.

“We review consent on a case-by-case basis and really encourage customers to engage with their banker early so we can support a good outcome with them and know they’ve received good external advice also where appropriate,” Rynski says.

“What we like to see is a solid understanding of the project, and how it impacts upon the existing agricultural enterprise. In particular we want to ensure the landholder has accounted for the risks and obligations over the life of the project”.