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Australia’s Independent Farm Policy Research Institute

Greenhouse emissions trading and Greenhouse emissions trading and agriculture:agriculture:

Opportunities and threats.Opportunities and threats.



Mick Keogh

Executive Director,

Australian Farm Institute.



Beware promises of ‘El Dorado’ !!Beware promises of ‘El Dorado’ !!



• Terminology.

• Current ETS proposals

• Issues for agriculture;– Gentle glide or crash landing?– To participate or not to participate?– Competitiveness– What counts as an offset?– Defining the baseline.– Role of processors/intermediaries

• Positioning agriculture for a greenhouse gas-limited future.



Emissions trading - a new language.Emissions trading - a new language.

• Permit – a licence to emit greenhouse gases. These are allocated or sold to emissions trading scheme participants.

• Offset – an action, carried out by a non-participant, that removes greenhouse gases from the atmosphere and locks them up for an extended period.

• Cap – Periodic limits placed by governments on greenhouse gas emission levels of participants. Varied over time.

• Covered sectors – those sectors of the economy whose participants are required to be direct participants in an ETS.



• Terminology.






The PM’s Task Group proposalThe PM’s Task Group proposal

• A national ‘cap and trade’ emissions trading scheme to start 2011-12

• 900 biggest emitters, including fuel distributors, required to

participate (55% of national emissions)

• Emissions-intensive and trade-exposed businesses (participants)

compensated with free emission permits.

• Baseline 2007 – 08 with abatement activities and offsets recognised if

initiated post June 2007.

• Agriculture not required to participate (uncovered), but inclusion of

agriculture ‘desirable in the future’

• Initial emissions reduction rates (glide path) slow.



Participation in ‘cap and trade’ ETSParticipation in ‘cap and trade’ ETS

Step 1.

Establish baseline level of emissions

(100). Cap set (95)

Step 2.

Receive or purchase 95

permits

Step 3.

Reduce emissions, or buy offsets or permits

to equal emissions cap.

Surrender permits

Period over which cap applies

Step 4.

New cap level established.

Permits obtained.

Return to step 3

100

95



• Terminology.






40%

50%

60%

70%

80%

90%

100%

110%

20

10

20

15

20

20

20

25

20

30

20

35

20

40

20

45

20

50

The ‘glide path’ mattersThe ‘glide path’ matters

Big cuts later

•Impact on energy costs less initially.

•Value of offsets low in early stages.

Big cuts early

•Impact on energy costs high initially.

•Value of offsets high in early stages.



• Terminology.






Farm greenhouse emissionsFarm greenhouse emissions

Wheat-sheep farm, 10,000 dse, 700 ha crop

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800

Electricity and fuel

Livestock - methane

Nitrogen fertiliser

Nitrogen - soils

Nitrogen - animal wastes

Tonnes CO2-e

2,689 Tonnes per annum.




1,700 ha cropping enterprise

0 200 400 600 800 1000 1200 1400 1600 1800

Fuel – CO2

Nitrogen fertiliser

Soils – nitrogen

Burning - CO2

Tonnes Co2-e per annum

660 tonnes per annum




Wheat-sheep farm, 10,000 dse, 700 ha crop

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800

Electricity and fuel

Livestock - methane

Nitrogen fertiliser

Nitrogen - soils

Nitrogen - animal wastes

Tonnes CO2-e

2,689 Tonnes per annum.



• Terminology.






Competitiveness of agricultureCompetitiveness of agriculture

• progressive increase in fuel, energy costs.

• progressive increase in ‘energy-price sensitive’ costs (freight, contracting, chemicals).

• progressive disadvantage for Australian farmers relative to developing-nation competitors.

• potential boost for investment in plantation forestry offsets during early stages of trading scheme.

• increasing pressure on farmers to demonstrate GHG credentials in affluent markets (Tesco)



• Terminology.






OffsetsOffsets

• Activities by non-participants, recognised as reducing net emissions.

• Permanency and additionality two key concepts.

Permanent carbon stocks Low-emission agriculture

?



Potential offsetsPotential offsets

Offset Tonnes CO2-e / ha /

year

High rainfall timber plantation 30

Low rainfall timber plantation 5

Soil carbon management 0.3 – 1.0

Cattle management to gain 10% lower emissions (3 – 5 t CO2-e / head / yr) 0.3 – 0.5

Sheep management to gain 10% lower emissions ( 0.1 – 0.2 t CO2-e / head / yr ) 0.1 – 0.2



Permanent farm offsets.Permanent farm offsets.

• Transaction costs may limit small-scale areas of

trees.

• Local and regional pooling services essential.

• Remote sensing and modelling rather than direct

measurement

• Buyer vs Seller liability

• Carbon-depletion events

• Natural regrowth vs tree planting



Non-permanent farm offsetsNon-permanent farm offsets

• Soil, livestock, fertiliser management all have potential

• Voluntary BMPs needed at regional and commodity level

• Farm offset ‘package’ linked to contracts and payment

• Some win-win gains available.

• Ruminant livestock emissions a major challenge

• Agriculture will need to argue for recognition of non-

permanent offsets



• Terminology.






Baseline makes a big differenceBaseline makes a big difference

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Combined Energy,

Industrial and Waste

Combined Agriculture and

Landuse change emissions

Total Australian emissions

Agriculture has received no

credit for this reduction in emissions.



• Terminology.






Role of processor/IntermediaryRole of processor/Intermediary

• Administrative cost associated with 120,000 farm businesses creates major challenges.

• NZ model proposes Processors would be responsible for GHG footprint of suppliers.

• Presumption is that Processors would drive GHG efficiencies through pricing structures.



• Terminology.



• Positioning agriculture for a GHG-limited future.



Positioning agriculture.Positioning agriculture.

• Research and development priorities

• Early decision on direct participation in ETS

• International competitiveness challenges

• Food miles/carbon footprint challenges

• Broad recognition of offsets

• GHG accounting issues.



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