Climate change is a hot topic. Every business, community and individual is encouraged to do their bit for reducing our carbon footprint. For rural landholders, there is an opportunity to not only make a difference to Australian air quality, but reap some rewards at the same time.
The concept sounds simple enough – a farmer creates a carbon sink by planting trees on their property. The carbon removed from the air (sequestered) by the trees can then be sold as carbon credits for offsetting emissions.
There are already an impressive number of programs operating in this field – companies administering, buying and selling carbon credits. The carbon trading industry is still only relatively young, but has the capacity to explode – with a gross investment potential of terrestrial carbon in Australia of between $3 billion and $6.5 billion per annum.
Up to 28 million hectares¹ of agricultural land could be economically suitable for afforestation for the purpose of carbon sinks between 2007 and 2050, according to a 2008 report by the Australian Bureau of Agricultural and Resource Economics.
“The best outcome for society is to focus on non-productive land and to integrate forest sinks within an otherwise productive agricultural setting,” says Richard Smith, Operations Manager for Landcare CarbonSMART, which has been an active player in carbon sequestration projects.
These projects seem to offer something for everyone: a step in the right direction in the global fight against climate change; an avenue for businesses to meet their offset targets – either mandatory or voluntary; and the opportunity for landholders to turn previously unproductive land into an environmentally sustainable and cash-generating investment.
“It’s either an annual payment or a lump sum up front, typically the market value of the land plus sometimes a little bit extra,” explains Andrew Grant, CEO of CO2 Australia. “Sometimes the motivation is just to free up a little bit of capital for the landholder – you might be reducing your debt to equity or for other reasons you want to diversify. But generally most of our landholders are doing it because they’re attracted to the other benefits that the trees bring.”
Those benefits include prevention of soil erosion, shelter for stock, salinity management and providing windbreaks. “Surprisingly but increasingly [another] driver is just the overall amenity of the farm,” says Grant. “A challenge of some of these remote rural areas is just the livability of the country.”
Why aren’t they all doing it?
Perhaps the main challenge associated with these projects is that the forest must be kept on the land for a minimum of 100 years, otherwise the landholder will have to pay for the carbon they’ve released by clearing it.
“It’s a core requirement of forestry sinks that they do have a covenant style arrangement placed over them because of the permanence issue associated with that carbon,” says Smith, who adds that the presence of the carbon sink would be registered on the land’s certificate of title.
“A purchaser of the land would then look at the federal government scheme registry and they’d be able to see exactly where the patches are, how much carbon has been traded off and how much carbon income is expected to be generated from that patch through the scheme over the coming years.”
But in the here and now, there is some uncertainty. The carbon trading industry, corporate Australia and landholders alike wait with baited breath as a proposed framework for carbon offsetting requirements in Australia is passionately debated.
“It’s one of those things that had very rapid growth for a while and now it’s in a bit of a holding pattern,” says Grant. “But it could have huge, massive growth – but dependent on external policy.”
“I would say there’s a high interest from landholders in carbon trading,” agrees Smith. “But there is some uncertainty because of changes in the federal government regulations… I expect that not as many landholders have signed up as would otherwise have been the case.”
If the market achieves its growth potential, it could be good news for those with eligible land, and not just because of the dollar value placed on carbon. “I would suspect over time that it should increase the value of the land because it’s improving the viability of the farming operation,” says Grant. Not to mention improving air quality – now that’s really worth something.