Dr. Tony RichardsonDr. Tony RichardsonDirector, TreeSmart Australia & TreePower AustraliaDirector, TreeSmart Australia & TreePower Australia

Your Farm Your Future Forum, Dookie, 6 May 2009

Overview• What is an Emissions Trading Scheme?• The Australian Emissions Trading Scheme– The Carbon Pollution Reduction Scheme

• Emissions Trading vs Carbon Tax• The Voluntary Offset market• Implications for Rural Areas• The Role of Offsets/Credits• Renewable Energy from Biomass• A Distributed Energy Scanario.

What is Emissions Trading?• Excess of Greenhouse Gases in the atmosphere leading to

climate change• Need to limit GHG emissions and/or remove previous GHG

emissions from atmosphere• Government imposes “cap” on allowable emissions for the

country, and issues this many permits• Companies must surrender a permit for each tonne of CO2-e

that they emit• If they don’t have sufficient permits, they are fined and must

also surrender permit in next period (make-good provision).

What is Emissions Trading?• Companies can obtain permits in three ways:– Free initial allocation– Purchase via auction– Buy from other companies who don’t need them

• Companies will buy as many permits as they think they will need in the coming year

• Companies have choice of abating their emissions, or buying a permit, and will do whichever is cheapest

• In summary, Government imposes a “cap” and then companies “trade” to obtain permits

• Hence, “cap and trade”.

Cap and TradeEmissions Current Emissions

Current Current

Company A Company B

Cap and TradeEmissions Imposition of 90% Cap

90% Cap

Current Current

Company A Company B

Cap and TradeEmissions Advance Purchase of Permits

90% Cap

Current Estimated Current Estimated

Company A Company B

Cap and TradeEmissions Actual Emissions

90% Cap

Current Estimated Actual Current Estimated Actual

Company A Company B

Cap and TradeEmissions Credits and Liabilities

90% Cap LiabilityCredits

Current Estimated Actual Current Estimated Actual

Company BCompany A

Cap and TradeEmissions The Trade

90% Cap

Current Estimated Actual Current Estimated Actual

Company BCompany A

Cap and TradeEmissions After the Trade

90% Cap

Current Estimated Actual Permits Current Estimated Actual Permits

Company A Company B

The Australian ETS (CPRS)• Covered Greenhouse Gases– CO2 plus five other gases

• Covered and Uncovered Sectors– Covered means you need to account for your net

emissions– Everything covered except Agriculture (till 2015)– Forestry can opt-in to Covered Sector– Only large emitters covered (about 1000 companies)

• Lots of exemptions and special cases• Legislation into Parliament in early-2009• Must pass through Senate (Double Dissolution??)• Complicated by Global Financial Crisis• Beginning in mid-2011?

Emissions Trading vs Carbon Tax• Emissions Trading imposes a cap on emissions and then lets

the price of emission credits vary in response to trading demand– high demand for credits will produce high price

• Carbon Tax would impose a fixed tax on the CO2-e content of products, and then allow consumers to determine how much emissions will be reduced

Emissions Trading

Carbon Tax

Emissions Fixed Variable

Carbon Price Variable Fixed

The Voluntary Carbon Market• The CPRS will not reduce emissions significantly• Many individuals and organisations will still want to go

“carbon neutral” themselves• Not all Offsets will qualify for the CPRS• Voluntary Carbon Market will operate in parallel with

CPRS• However, still many questions about the interaction

between the CPRS and the VCM• Voluntary Carbon Markets Association.

What does it mean for rural areas?• Agricultural enterprises will initially be uncovered, but don’t

bet on this lasting for very long– White Paper has indicated review in 2013 leading to

coverage by 2015• Costs of many commodities will rise in rural areas (e.g.

electricity, petrol, fertiliser, food etc)• However, there are opportunities for rural areas• Rural areas have greatest opportunities to create carbon

credits (CPRS) and carbon offsets (VCM)• Can be sold to minimise, or reverse, the cost increases felt in

other commodities• How can they do this?

Carbon Offsets by Tree-PlantingPlanting trees on farms can bring many

benefits:• Biodiversity and habitat creation• Shelter for stock• Salinity and erosion control• Sawlog production • Carbon sequestration• Production of renewable energy feedstock.

• As trees grow, they absorb CO2 to produce the carbon which is about 50% of the wood

Biosequestration in Trees

As a result, most offsetting programs by tree-planting have concentrated on “permanent” plantations.

Kyoto Protocol Harvesting Rules

Recognition of Sequestration in Harvested Timber“Inclusion of forestry emissions in an ETS requires assessment and measurement of carbon sequestered in long-lived timber products.”(Chap. 3.4, Garnaut Review ETS Discussion Paper, 2008)“The Kyoto rules exclude forests established prior to 1990 and treat the carbon stored in felled trees as if it had all been released into the atmosphere at that time. The Government believes these accounting rules are not an appropriate reflection of reality - carbon stored in wood products should be recognised in international agreements.” (Page 17, CPRS Green Paper, 2008)

Five Forms of Sequestration/Storage• In the living trees (above ground)

• In the roots (before and after harvest)

• In the timber products (for working life)

• In landfills (after working life)

• In unused fossil fuels (via fuel substitution).

Sequestration in Roots• Carbon is stored in roots according to

root-shoot ratio (in range of 20% to 50%)

Sequestration in Roots• In harvested plantations, roots store carbon

before and after harvesting

Sequestration in HWP• HWP continue to store carbon during their

working life, and after it (in landfills)

Sequestration via Bioenergy• Harvest residue used to produce bioenergy is

carbon neutral in itself, but also reduces emissions from unused fossil fuel sources

• “CPRS scheme obligations would not apply to emissions from combustion of biofuels and biomass for energy; they would receive a ‘zero rating’” (p117, CRPS Green Paper)

• This means that carbon stored in wood used for bioenergy is assumed to be indefinitely stored in the alternative, unused fossil fuel.

Sequestration via Bioenergy• Carbon stored in harvest residue used to produce

bioenergy continues unreduced

Perpetual Forest vs Harvested Forest• Harvesting can increase total sequestration in all formats

over the long term

Perpetual Forest vs Harvested Forest

…even when carbon storage in HWP is not yet recognised in the CPRS

Economic Benefits to Region• Selling carbon credits within the ETS• Selling carbon offsets to the Voluntary market• Producing bioenergy – For on-site use– For sale to the grid– Receiving benefits of feed-in tariffs, and/or– Receiving income from sale of RECs– Regional employment.

Three Bioenergy Scenarios• Farm-scale Gasification Units for on-farm use

• Small-scale Mobile Gasification/Pyrolysis Units for feeding electricity into the Grid or otherwise capturing energy products

• Medium-scale Bioenergy Power Plants for Municipal-scale Application.

1. Farm-scale Gasification Units • Designed for continuous on-farm use.

2. Mobile Wood-Energy Units• Designed for transport between farms, and

generating energy products from wood.

Source: Auburn University, Alabama

2. Mobile Wood-Energy Units

Source: Auburn University, Alabama

3. Municipal Bioenergy Farms• Medium-scale Power Plants with

Municipal-scale Bioenergy Farms• Grow the bioenergy trees on dedicated Energy Farm

properties within the shire• Use medium-scale Power Plants (1-5MW) (combustion,

gasification, pyrolysis) to generate electricity for local use & to feed into the Grid

• Municipal residents and businesses can then buy their “own” Green Power

• Can also meet heating and cooling needs• Current proposal for Marysville reconstruction.

Tri-generation Power Plants

Conclusions• We face a carbon-constrained future• Australia will deal with this future via a

Cap-and-Trade Emissions Trading Scheme– The Carbon Pollution Reduction Scheme

• Agriculture not initially “covered”• But indirect impacts on Rural Areas• HOWEVER, opportunities for Rural Areas• Via Offsets/Credits from Tree-Planting• Local production of Renewable Energy.

Dr. Tony RichardsonDr. Tony RichardsonDirector, TreeSmart Australia & TreePower AustraliaDirector, TreeSmart Australia & TreePower Australia

Your Farm Your Future Forum, Dookie, 6 May 2009