Australia’s Independent Farm Policy Research Institute Greenhouse emissions trading and agriculture: Opportunities and threats. Australia’s Independent Farm Policy Research Institute Mick Keogh Executive Director, Australian Farm Institute.

Australia’s Independent Farm Policy Research Institute Beware promises of ‘El Dorado’ !!

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute The PM’s Task Group proposal A national ‘cap and trade’ emissions trading scheme to start 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 Agriculture not required to participate (uncovered), but inclusion of agriculture ‘desirable in the future’ Initial emissions reduction rates (glide path) slow.

Australia’s Independent Farm Policy Research Institute Participation 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

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute 40% 50% 60% 70% 80% 90% 100% 110% The ‘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.

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute Farm greenhouse emissions

Australia’s Independent Farm Policy Research Institute Farm greenhouse emissions

Australia’s Independent Farm Policy Research Institute Farm greenhouse emissions

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute Competitiveness 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)

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute Offsets Activities by non-participants, recognised as reducing net emissions. Permanency and additionality two key concepts. Permanent carbon stocks Low-emission agriculture ?

Australia’s Independent Farm Policy Research Institute Potential offsets Offset Tonnes CO 2 -e / ha / year High rainfall timber plantation30 Low rainfall timber plantation5 Soil carbon management0.3 – 1.0 Cattle management to gain 10% lower emissions (3 – 5 t CO 2 -e / head / yr) 0.3 – 0.5 Sheep management to gain 10% lower emissions ( 0.1 – 0.2 t CO 2 -e / head / yr ) 0.1 – 0.2

Australia’s Independent Farm Policy Research Institute 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

Australia’s Independent Farm Policy Research Institute Non-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

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute Baseline makes a big difference Agriculture has received no credit for this reduction in emissions.

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute Role 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.

Australia’s Independent Farm Policy Research Institute 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 GHG-limited future.

Australia’s Independent Farm Policy Research Institute 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.

Australia’s Independent Farm Policy Research Institute

Australia’s Independent Farm Policy Research Institute Australian Farm Institute Corporate Supporters Australian Farm Institute Suite 73, 61 Marlborough St Surry Hills NSW