1. Greenhouse gas emissions, carbon farming and case study analysis for farmers This presentation was developed by the Australian Farm Institute and supported by funding from the Australian Government.

2. Contents Section 1:The carbon cycle and greenhouse gas emissions Section 2: Carbon policy implications for farm businesses Section 3: Case study analysis including beef cattle, sheep and cropping enterprises Section 4: FarmGAS Calculator upgrade and the Financial Tool. 2

3. The carbon cycle Carbon dioxide (CO 2 ) in the atmosphere exchanges continuously with plant and water Human activities like burning fossil fuels has increased CO 2 and other greenhouse gases in the atmosphere Other major types of greenhouse gas emissions include; 1)Methane (CH 4 ) – from wetlands and activities like natural gas systems and livestock 2)Nitrous oxide (N 2 O) from activities such as agriculture, fossil fuel combustion and industrial processes. 3 Key points

4. Balancing the carbon cycle Two ways to assist with lowering greenhouse gas emissions include; Sequestration involves long term storage of carbon dioxide and other forms of carbon in plants as they grow or by increasing soil organic matter Mitigation strategies generate greenhouse emissions abatement by reducing or avoiding emissions such as methane (CH 4 ) and nitrous oxide (N 2 O). 4 Key points

5. Australian agricultural greenhouse gas emissions Major emissions sources include; 1)Enteric fermentation releases methane into the atmosphere when ruminant animals such as cattle and sheep belch 2)Agricultural soils mainly emit nitrous oxide when converting soil nitrogen into nitrate (nitrification) and nitrogen gas (denitrification) 3)Savanna burning includes both methane and nitrous oxide emissions that are excessively released into the atmosphere and not able to be re-absorbed by the landscape. 5 Key points

6. Contents Section 1:The carbon cycle and greenhouse gas emissions Section 2: Carbon policy implications for farm businesses Section 3: Case study analysis including beef cattle, sheep and cropping enterprises Section 4: FarmGAS Calculator upgrade and the Financial Tool. 6

7. Australian carbon policy ACCUs: In 2011, the Australian Government established the Carbon Farming Initiative (CFI) to allow farmers and land managers to voluntarily participate in carbon markets by earning Australian Carbon Credit Units (ACCUs) by storing or reducing greenhouse gas emissions on the land ERF: The Coalition Government - elected in September 2013 - has planned to merge the CFI with the Emissions Reduction Fund (ERF). The ERF is a central component of the Government’s Direct Action Plan climate policy Incentive based: Essentially, the ERF will be an incentive-based approach aimed at supporting Australian businesses in lowering their energy costs and increasing their productivity, while at the same time reducing Australia’s greenhouse gas emissions Clean Energy Regulator: Projects are that using emissions reduction methodology determinations, including methodologies approved under the CFI, will be eligible to participate in the ERF reverse auction process, and this process will be administered by the Clean Energy Regulator. 7

8. Participating in carbon farming projects Projects: Carbon farming projects are approved by the Clean Energy Regulator Methodologies: Projects must follow a methodology that has been legally assessed and determined for commercial use. The methodology determinations process includes rigorous evaluation by a reference committee appointed by the Commonwealth Department of the Environment Rules: Methodologies that are approved will contain detailed rules that ensure projects earn ACCUs according to the conditions set within the carbon policy framework. Criteria: Methodologies must be additional to a business-as-usual case, involve no emissions leakage, have scientific validity, follow permanence obligations where required and be audited routinely by a third party. Participation: The two main ways for farmers to participate in carbon farming projects include direct participation or through an aggregation method. 8

9. Agriculture (livestock, soil carbon, fertilisers, feral animals) Destruction of methane generated from dairy manure in covered anaerobic ponds Destruction of methane from piggeries using engineered bio digesters Destruction of methane generated from manure in piggeries Reducing greenhouse gas emissions in milking cows through feeding dietary additives. Vegetation (regrowth, reforestation, avoided clearing and harvest) Environmental Plantings Human-Induced regeneration of a permanent even-aged native forest Native forest from managed regrowth Native forest protection (avoided deforestation) Quantifying carbon sequestration by permanent plantings of native mallee eucalypt species using the CFI reforestation modelling tool Reforestation and Afforestation Savanna burning Sample of Methodology Determinations – agriculture and vegetation only 9

10. Contents Section 1:The carbon cycle and greenhouse gas emissions Section 2: Carbon policy implications for farm businesses Section 3: Case study analysis including beef cattle, sheep and cropping enterprises Section 4: FarmGAS Calculator upgrade and the Financial Tool. 10

11. Farm-1: Beef cattle breeding and sheep farm in North East Victoria Farm-1 is 4,166 hectares and consists of mainly alluvial river flats and mountain grazing land The farm enterprises include a beef cattle breeding herd of more than 1,500 cows and a flock of 600 breeding ewes. 11 Key points

12. Farm-1: Greenhouse gas emissions output summary The Australian Farm Institutes FarmGAS Calculator estimated that the total annual greenhouse gas emissions from Farm-1 were 6,162.43 tonnes of carbon dioxide equivalents (CO 2 -e) The major greenhouse gas emissions output from Farm-1 was enteric methane from the beef cattle breeding enterprise. 12 Key points

13. Farm-1: Greenhouse gas emissions abatement scenarios The FarmGAS Calculator was then used to compare three hypothetical project scenarios to the current farm operation (whole farm comparisons). The greenhouse gas emissions scenario modelling estimated that the enterprise change to running more sheep and less cattle scenario provided the largest amount of greenhouse gas abatement. This scenario was based on the existing livestock characteristics and production factors for this specific farm 13 Key points

14. Dietary supplement for beef cattle: This technology sounded exciting but would require a thorough cost analysis on this specific farm before implementation There would also need to be a clear understanding to how beef consumers would feel about this technology Changing enterprise structure in order to run more sheep and less cattle: The farmer was interested in hearing about how these types of changes can reduce greenhouse gas emissions output. The farmer also understood that this scenario is a general farm management decision and is not likely to be a carbon farming project that could generate credits under a carbon crediting scheme Due a wild dog problem in the local area, this scenario would require significant investment in wild dog management before it could be implemented Tree plantings: Some tree plantings have already occurred on this farm and farmer sees a lot of benefits not only for carbon farming but for biodiversity and soil erosion control However, tree plantings on this farm are costly to implement due the manual labour required in the establishment phase. For further tree plantings on this farm, there would need to be more incentives that could offset upfront costs. Farm-1: Farmers feedback on each scenario 14

15. Farm-2 case study: Cropping and sheep farm in the central southern NSW Farm-2 is an aggregation of farming properties that covers an area of 1,488 hectares and consists of mainly undulating cropping land The farm enterprises include a winter cropping rotation that plants 1,100 hectares of crops each year (including grain crops) and a flock of merino sheep with more than 2,800 ewes. 15 Key points

16. Farm-2: Greenhouse gas emissions output summary The FarmGAS Calculator estimated that the total annual greenhouse gas emissions from Farm-2 were 1,283.43 tonnes of carbon dioxide equivalents (CO 2 -e) The major greenhouse gas emissions output from Farm-2 was enteric methane from the sheep enterprise. 16 Key points

17. Farm-2: Greenhouse gas emissions abatement scenarios The FarmGAS Calculator was then used to compare three hypothetical project scenarios to the current farm operation (whole farm comparisons) The greenhouse gas emissions scenario modelling estimated that the environmental tree lot scenario provided the largest amount of greenhouse gas abatement. 17 Key points

18. Switch from autumn to spring lambing and wean lambs at two months: The farmer was interested in hearing about how these types of changes can reduce greenhouse gas emissions output. The farmer also understood that this scenario is a general farm management decision and is not likely to be a carbon farming project that could generate credits under a carbon crediting scheme The farmer preferred that lambing occurred in autumn as this timing fitted in with cropping activities from a labour and pasture availability perspective Tree plantings: The farmer could see benefits with tree plantings and this scenario would be considered if permanence obligations were less than 50 years The farmer was concerned about the permanence obligations for sequestration projects as international scientific standards require a 100 year commitment to achieve carbon sequestration Nitrogen fertiliser inhibitor: Although the nitrogen fertiliser inhibitor only reduced whole farm emissions by 1%, the fertiliser inhibitor technology did reduce the cropping enterprise greenhouse gas emissions by 11% However, the farmer had concerns that the cost of the manufactured fertiliser technology may outweigh the benefits. Farm-2: Farmer feedback on each scenario 18

19. Farm-3 case study: Sheep farm in the southern tablelands of NSW Farm-3 is 530 hectares and consists of hill grazing land The farm enterprises includes a merino breeding flock of more than 1,200 ewes. 19 Key points

20. Farm-3: Greenhouse gas emissions output summary The FarmGAS Calculator estimated the total annual greenhouse gas emissions from Farm-3 were 362.84 tonnes of carbon dioxide equivalents (CO 2 -e) The major greenhouse gas emissions output from Farm-3 was enteric methane from the sheep enterprise. 20 Key points

21. Farm-3: Greenhouse gas emissions abatement scenarios The FarmGAS Calculator was then used to compare three hypothetical project scenarios to the current farm (whole farm comparisons) The greenhouse gas emissions scenario modelling estimated that the tree planting scenario provided the largest amount of greenhouse gas emissions abatement. 21 Key points

22. Switch from autumn to spring lambing, increase lambing and wean earlier: The farmer was interested in hearing about how these types of changes can reduce greenhouse gas emissions output. The farmer also understood that this scenario is a general farm management decision and is not likely to be a carbon farming project that could generate credits under a carbon crediting scheme The farmer was open to changing lambing/weaning practices if that provided additional benefits in emissions reductions Change enterprise structure for wethers to be on-farm for nine months only: The farmer was interested in this scenario and understood that this scenario is a general farm management decision and is not likely to be a carbon farming project that could generate credits under a carbon crediting scheme The farmer would look at a sheep trading scenario on this farm if it provided additional benefits in emissions reductions Tree plantings: The farmer could see benefits with tree plantings and this scenario would be considered if permanence obligations were less than 50 years The farmer was concerned about the permanence obligations for sequestration projects as international scientific standards require a 100 year commitment to achieve carbon sequestration. Farm-3: Farmer feedback on each scenario 22

23. Farm-4 case study: Beef cattle farm in the Central Highlands Northern Queensland Farm 4 is 16,119 hectares and consists mainly of sub-tropical grazing land The farm enterprises include a beef cattle breeding herd of more than 2,000 cows and up to 4,400 store cattle. 23 Key points

24. Farm-4: Greenhouse gas emissions summary The FarmGAS Calculator estimated the total annual greenhouse gas emissions from Farm-4 were 6,194.95 tonnes of carbon dioxide equivalents (CO 2 -e) The major greenhouse gas emissions output from Farm-4 was enteric methane from the store cattle enterprise. 24 Key points

25. Farm-4: Greenhouse gas emission abatement scenarios The FarmGAS Calculator was then used to compare three hypothetical project scenarios to the current farm operation (whole farm comparisons) The greenhouse gas emissions scenario modelling estimated that the dietary supplement in cattle feed scenario provided the largest amount of greenhouse gas abatement. 25 Key points

26. Dietary supplement for beef cattle: This technology sounds exciting but would require a thorough cost analysis on this specific farm before implementation Improved beef cattle breeding genetics that lower methane emissions: The farmer was interested in hearing about research being undertaken in cattle breeding for lowering methane emissions output However, the farmer was concerned about the practicality of this scenario given it might impact the productivity developments already achieved with breeding beef cattle on this specific farm Shorter trading period for store cattle: The farmer was interested in hearing about how these types of changes can reduce greenhouse gas emissions output. The farmer also understood that this scenario is a general farm management decision and is not likely to be a carbon farming project that could generate credits under a carbon crediting scheme The store cattle trading period on this specific farm fits in with the farmers beef cattle breeding operations located on other farms. This means that the seasonal conditions on the other farms is the main determinant for grazing practices and would likely prevent this farmer from committing to a fixed trading period due to the variability in seasonal conditions. Farm-4: Farmer feedback on each scenario 26

27. Contents Section 1:The carbon cycle and greenhouse gas emissions Section 2: Carbon policy implications for farm businesses Section 3: Case study analysis including beef cattle, sheep and cropping enterprises Section 4: FarmGAS Calculator upgrade and the Financial Tool. 27

28. FarmGAS Calculator Scenario Tool and Financial Tool The FarmGAS Calculator Scenario Tool (ST) has been upgraded to comply with Government reporting methods. Majors changes include savanna burning and emissions factors The FarmGAS Calculator ST upgrade also includes Model Scenarios to assist Users learn more about the tool. A separate Financial Tool has been developed that uses farm and emissions information from the FarmGAS Calculator ST to conduct financial modelling for different emissions reduction projects. 28 Key points

29. FarmGAS Financial Tool and the Marginal Abatement The Financial Tool requires data entry for farm business items such as overheads, gross margins and capital expenditure. Annual monetary benefits, discount rates for the capital costs involved in the project and the project life in years are then used to generate a Net Present Value (NPV) for each project. The net present value and the emissions reduction amount gathered from the FarmGAS Calculator ST then produce a Marginal Abatement Cost Curve (MACC). The Financial Tool allows up to eight projects to be compared on the MACC. 29 Key points

30. Key messages Human activities such as burning fossil fuels has put the carbon cycle out of balance by increasing levels of greenhouse gases, and this is leading to warmer temperatures globally. Once registered and verified, carbon farming projects provide incentives for farmers and land managers to reduce greenhouse gases by earning Australian carbon credit units The Clean Energy Regulator administers carbon farming projects which farmers and land managers can implement directly or through an aggregator Farm case studies with beef, sheep and grains enterprises were analysed for current farm greenhouse gas emissions output and potential emissions reduction scenarios. The hypothetical emissions reduction scenarios included dietary supplements in livestock feed, enterprise changes, tree plantings, nitrogen fertiliser inhibitors and improved livestock breeding genetics The environmental and economic benefits of these farm case studies could be further analysed by using the FarmGAS Calculator Financial Tool which was launched publicly in June 2014. 30