Chapter 4
The impact of an emissions trading scheme for the Australian agricultural
sector
Introduction
4.1
The impact of an emissions trading scheme on the Australian agricultural
sector was a particular point of concern raised in submissions and evidence during
the course of the Inquiry. The committee received numerous submissions about
the design and coverage of an emissions trading scheme, and specifically the
methodology for accounting for agricultures emissions and removals of
greenhouse gases was a source of much debate throughout the inquiry.
4.2
This chapter begins with a discussion of the Government's Carbon
Pollution Reduction Scheme (the Scheme) proposal and then moves on to discuss
some of the concerns raised in relation to an emissions trading scheme and the
agricultural and forestry sectors. All submissions to the Inquiry were received
prior to the announcement of details of the Scheme. For this reason, some of
the issues in this chapter are not discussed in the context of specific
proposals in the Scheme.
The Carbon Pollution Reduction Scheme
4.3
In July 2008, the Australian Government released its Green Paper on the
Carbon Pollution Reduction Scheme (Green Paper), which outlines the Government's
approach to the design of a national emissions trading scheme.[1]
The Carbon Pollution Reduction Scheme (the Scheme) will be a 'cap and trade'
scheme. According to the Green Paper this will create a carbon price and ensure
that emissions are reduced at the lowest possible cost.[2]
4.4
Although the Green Paper does not address the levels of the caps in the
Scheme, the Government has indicated that the caps will be 'consistent with the
Government's commitment to reduce national emissions by 60% of 2000 levels by
2050'.[3]
4.5
The Green Paper states that the Scheme should have 'maximal practical
coverage of greenhouse gas emissions and sectors':
Broad scheme coverage is a key element in reducing the overall
cost to the Australian economy of achieving emissions reductions. Broad
coverage will increase opportunities for low-cost emissions reductions and
ensure that the cost of achieving those reductions is shared as equitably as
possible across the economy. Broad coverage will also ensure that competing
firms and sectors operate within equivalent market conditions.[4]
4.6
However, the Government acknowledges that there are practical
limitations to broard coverage by the Scheme, notably compliance costs and the
capacity to estimate emissions in an unbiased manner.[5]
4.7
The Green Paper identifies several characteristics of agriculture
emissions which create difficulties for including agriculture in the Scheme. As
was noted in Chapter 3, agriculture emissions vary in response to management
practices and climatic conditions. In addition, the agricultural sector has a
large number of entities with relatively low emissions, that is, less than one
kilotonne of carbon dioxide equivalent per year.[6]
4.8
The Green Paper states that the Government is disposed to include
agriculture emissions in the Scheme by 2015 and to make a final decision on
this issue in 2013.[7]
The Green Paper does note that in the event that coverage of agriculture
emissions in the Scheme proves impractical, the Government will consider alternative
mitigation measures, for example: mandatory adoption of emissions standards,
certain low-emissions technologies or management practices. However, the Green
Paper notes that such measures are 'unlikely to be as cost effective as
market-based approaches such as emissions trading and are likely to increase
overall abatement costs'.[8]
The Green Paper also notes that offsets are another mechanism that could
provide firms in uncovered sectors to undertake abatement, however:
By their very nature ... offsets assist other sectors to meet
their emissions obligations, rather than providing a means by which a sector
contributes to national emissions reductions.[9]
Accounting for greenhouse gas emissions and removals
4.9
In the event that agriculture were to be covered by an emissions trading
scheme, the accounting framework will be important because it determines which
agricultural emissions and sinks will be counted in an emissions trading scheme
and those which will be excluded.
4.10
Australia has obligations under the United Nations Framework Convention
on Climate Change (UNFCCC) and under the Kyoto Protocol to the UNFCCC (Kyoto
Protocol) for monitoring and reporting its greenhouse gas emissions.[10]
4.11
Ms Margaret Blakers explained to the committee the differences between
the UNFCCC and Kyoto Protocol accounting frameworks for greenhouse gas
emissions estimates:
... the Intergovernmental Panel on Climate Change – sets the
methodology. It says how to measure the carbon. Then there are two ways of reporting
the accounts. One is the Kyoto reporting and the other one is what is called
UNFCCC accounting. That is attempting to be more like a full carbon accounting
report.
The Kyoto accounting is a partial report. ... It looks only at
land use change, in particular at land use change that relates to forests,
because the assumption was that that was where the biggest emissions and uptake
would happen. So, for example, it does not look at soil carbon, it does not
look at degradation of rangelands and it does not look at logging native
forests.
The UNFCCC account is more comprehensive. It does look at
logging native forests. It still does not look, in the way that it is done in Australia,
at soil carbon, rangelands or any kind of non-forest vegetation. In the
Australian version it does not even look at conservation land. That is not
counted. It does not look at wetlands, for example. So even the UNFCCC
accounting ... is not yet anything like full carbon accounting, particularly the
way in which it is implemented in Australia.[11]
4.12
The Green Paper states that the Government's preferred position in
relation to accounting under the Carbon Pollution Reduction Scheme (the Scheme)
'should be consistent with the internationally agreed climate change framework
and cover only domestic emissions sources and sinks that are counted in
Australia's Kyoto Protocol emissions inventory'.[12]
4.13
Ms Blakers explained to the committee her concerns about proposals for
an emissions trading scheme which did not include full carbon accounting.
We are about to embark on a major economic change – namely,
emissions trading. I do not know on which accounting system it will be based
but, whichever accounting system it is, it is not going to be full carbon
accounting. That leaves the potential for very major what people call 'perverse
outcomes' because, if you are not counting everything properly – and, in
particular, if you are not disaggregating it; looking at the emissions on the
one side and the uptake on the other side – you do not know what you are
dealing with. It is like a shop trying to work out what to sell and what stock
to get in when all it knows is that it has had so many dollars worth of sales
in the last six weeks but it does not know whether it sold oranges or barley
sugar. It is the same problem with the carbon accounts. If you only have net
figures, you do not know what you are dealing with – you do not know where the
emissions are, you do not know where the uptake is and you cannot make policies
to get rid of the emissions, which I would say is the primary objective, along
with encouraging uptake where that is appropriate.[13]
4.14
Ms Blakers indicated to the committee that the UNFCCC system would be
the best system to be used in an emissions trading scheme.[14]
The Kyoto Protocol accounting framework
4.15
The committee heard from a number of stakeholders concerned that the
Kyoto Protocol framework would be adopted for accounting under the emissions
trading scheme. This section of the report outlines how agricultural and
forestry emissions are accounted for under the Kyoto Protocol accounting
framework.
4.16
In determining its greenhouse gas emissions, a party to the Kyoto
Protocol must account for emissions and removals from the following sectors: energy;
industrial processes; solvent and other product use; agriculture; and waste.[15]
As described in Chapter 3 of the report, agricultural emissions in this context
include: enteric fermentation, manure management, rice cultivation,
agricultural soils, prescribed burning of savannas, and field burning of
agricultural residues.
4.17
In addition, under Article 3.3 of the Kyoto Protocol, a country must
account for greenhouse gas emissions and removals in relation to direct,
human-induced afforestation, deforestation and reforestation activities. Under
Article 3.4 of the Kyoto Protocol, countries may also elect to include
emissions and removals from the following activities: revegetation; forest land
management; cropland management; and grazing land management.
4.18
In counting emissions towards its Kyoto Protocol target, Australia
counts emissions from sources covered under Article 3.3 of the Kyoto Protocol,
but has elected not to count sources covered under Article 3.4 of the Kyoto
Protocol.[16]
By implication, this means that farming practices covered by Article 3.4 of the
Kyoto Protocol would not be included in the Scheme, were agriculture to be
covered.
4.19
In responding to a question on notice, the Department of Climate Change
stated that it has not conducted a regulatory impact assessment in relation to
the inclusion of activities under Articles 3.3 and 3.4 of the Kyoto Protocol in
Australia's emissions accounts. The Department of Climate Change went on to
explain why the Australian Government elected not to include activities under
Article 3.4 of the Kyoto Protocol in its emissions accounts:
Australia has elected not to account for Article 3.4 activities
for the first commitment period. This decision was based on a risk analysis
prepared by the former Department of the Environment and Heritage (in
consultation with other relevant departments), as well as consultations
undertaken with state and territory governments and national agriculture and
forest industry stakeholders. The risk analysis found that the accounting
rules, Australia's variable climate, and the potential for disturbances such as
bushfires introduce a high risk of significant negative emissions outcomes. The
stakeholders endorsed the non-election of Article 3.4 activities.
The treatment of Article 3.3 and 3.4 activities under post-2012
international climate change agreements will be considered in negotiations
under the United Nations Framework Convention on Climate Change. The Australian
Government is consulting stakeholders on this matter in developing its position
for these negotiations, and will undertake further consultation as negotiations
progress.[17]
4.20
In relation to coverage by the Scheme of afforestation, deforestation
and reforestation activities, as defined in Article 3.3 of the Kyoto Protocol,
the Government's preferred positions are as follows:
-
all reforestation (as defined for the 2008-2012 period of the
Kyoto Protocol) would be included in the Scheme, on a voluntary basis, from the
commencement of the Scheme in 2010, with design details to be determined;[18]
-
deforestation will not be included in the Scheme because
Australian deforestation emissions have reduced markedly since 1990, due to
increased protections against land clearing.[19]
4.21
The committee notes that deforestation activities are not included in
the Scheme, despite being counted towards Australia's Kyoto Protocol targets.
Implications of an emissions
trading scheme for agriculture
4.22
As was noted in the introduction, the details of the Scheme were not
available at the time that the committee received submissions and held hearings
in this Inquiry. Despite this, the committee received submissions and evidence
on the implications of an emissions trading scheme for agriculture. One of the
key issues raised was the possibility that an emissions trading scheme would
not provide for full carbon accounting, particularly activities which are
covered by Article 3.4 of the Kyoto Protocol.
4.23
Ms Nicolette Boele of the Agricultural Alliance on Climate Change (AACC)
told the committee why she 'intuitively' supported a system of full carbon
accounting if agriculture were included in an emissions trading scheme:
...currently, under accounting protocols our commitments under the
first Kyoto period are that we count the bad stuff. We count the methane
emissions out the front end of the cows and we count the nitrous oxides that
oxidise through urea et cetera and the relationship with the soils and other
things like soil conditioners. We do not count the good stuff. We do not give
farmers the opportunity to actually get paid to improve and better adapt to the
changing climatic patterns. That, to me, is a complete opportunity lost.[20]
4.24
Mr Tim Wiley and Mr Bob Wilson provided the committee with a submission
outlining why they supported full carbon accounting, particularly the inclusion
of activities which increase soil carbon levels:
Farm management methods can change the amount of carbon in the
soil. A decrease in soil carbon is accounted for as an increase in a countries
green house gas emission. While an increase in soil carbon levels is accounted
as a reduction in emission for a country.
... With full carbon accounting farmers could off set their
emissions from live stock and energy use through the sequestration of carbon in
vegetation and soil.[21]
4.25
Mr Wiley and Mr Wilson went on to note that the inclusion of Article 3.4
sinks in an emissions trading scheme could provide a much needed source of
finance to farmers:
Carbon trading could provide the finance for agriculture
restructure. If soil carbon (Kyoto Article 3.4 sinks) was recognised under the
proposed national Emissions Trading Scheme (ETS) a new equity in agricultural
land will be created. Farmers will then be able to borrow against their carbon
sequestered or forward sell enough to finance the changes to their systems.[22]
4.26
The Australian Landcare Council noted that landholders could be paid for
offsets provided, but also stated that such offsets are viewed with caution by
rural industries because of the potential compliance constraints and
liabilities involved, at least until national policy is more settled.[23]
4.27
The committee did receive evidence that expressed doubts as to the value
of agricultural sequestrations under an emissions trading scheme. For example,
the Queensland Government's submission stated:
There is an expectation that there will be some financial
benefit to farmers from the carbon they sequester in vegetation or in the soil,
and carbon-trading schemes are currently being promoted to farmers. The value
to farmers of carbon sequestration is highly speculative until the design of
the trading scheme is resolved, and a means of verifying sequestration is
determined.[24]
4.28
The Future Farm Industries Cooperative Research Centre (Future Farm
Industries CRC) described as 'hype' the proposition that farmers will be able
to sequester carbon in plants and soils and sell it through emissions trading:
Experience with the NSW Greenhouse Gas Abatement Scheme has
already shown that individual farmers and incremental improvements in soil
carbon will not be in the market.
These schemes are for larger players who can validate to a fussy
buyer or regulator the amount of carbon sequestered, underwrite its security
for 70-100 years, and manage the risk of depletion events such as fire and
erosion.[25]
4.29
Ms Boele cited the trading of soil carbon on the Chicago Climate
Exchange as one example of where soil carbon trading had been successfully
incorporated into an emissions trading scheme.[26]
Ms Boele also explained to the committee how the Chicago Climate Exchange had
found a way around the 'imperfect science of soil carbon':
They divide the continent of North America into two rainfall
zones. Essentially, there is desert, which they give a 0.4 value to, and then
there are regular rainfall areas, which get a value of one. Then there are
approximately seven or eight different soil types ... They have done the tests on
the ground about changing practice A to practice B with a fence line in the
middle, and done the science on approximately how much extra carbon they get in
the soil. Then they have just done these proxies...where they have just said that
a certain strand of eucalyptus planted in this geographical region is going to
have a proxy value of X. It is the same thing they have done in the United
States: if you change your management from A to B, you get a credit of
whatever it might be. That credit then becomes, at the end, a function of which
rainfall pattern you are in – high or low – and then which soil type as well.
Then they discount it even further to provide enough market confidence. Of
course, some farmers decide not to do it because they are sequestering a lot
more carbon than the credit they get for it.[27]
4.30
The committee also notes Ms Boele's statements about the role of
governments in providing confidence to achieve these ends:
What we found was that yes, there are still barriers to
understanding the science ... but equally what is missing is market confidence
that there will in fact be a market for soil carbon. I am not getting any
signals yet from the Commonwealth or from the elected officials that soil
carbon can be part of Australia's international response on climate change.
Without that statement – and hopefully we will get it in the Green Paper this month
– it is little wonder that [Meat and Livestock Australia] is not investing
extra money in it and that the private sector, like Macquarie Bank, has not
leapt on doing deals with farmers for soil carbon improvements.
Without that certainty you will not get farmers paid to improve
the land. We do not actually have to have huge amounts in the government
coffers to do it. The private sector can probably do quite a bit of that.[28]
4.31
The need for political guidance on this issue was emphasised to the
committee on its visit to the Binnu district of Western Australia. Mr Wiley and
Mr Wilson noted in their submission that mining companies in Western
Australia are interested in funding research into farming systems that
sequester carbon. However, as Mr Wilson pointed out when the committee visited
Binnu following the release of the Green Paper, in the event that soil carbon
sequestration was not covered in the emissions trading scheme, there were would
be little motivation for mining companies to invest in this type of research.
Implications of an emissions
trading scheme for the forestry sector
4.32
Submissions and evidence to the inquiry from the forest industry
demonstrated that it supports the forestry and plantation industry playing an
important role in an emissions trading scheme. However, the committee also
heard concerns from those in the agricultural industry about the potential
impacts of including forestry sinks, albeit voluntarily, in an emissions
trading scheme. The role that the forestry industry can play in adapting to,
and mitigating, climate change is discussed in Chapter 3.
4.33
AP3, the peak representative body for the Australian plantation,
plantation products and paper industry, outlined some of the reasons it
believed that reforestation was amenable to inclusion in an emissions trading
scheme:
...the reasons for possible exclusion of the agriculture or
forestry sectors include difficulties in measurement and the relative cost of
measurement compared to the likely abatement or emissions.
... The major source of abatement in the forestry sector will be
from the establishment of trees on previously cleared land (reforestation).
This is a relatively small subset of the measurement challenge posed by the
combined agriculture and forestry sectors. These areas are readily identifiable
and measurable. The emissions and storage of carbon from these plantations can
be successfully tracked and accounted.[29]
4.34
In its submission to the Garnaut Climate Change Review, the National
Association of Forest Industries outlined the potential for carbon
sequestration offered by the expansion of plantation forests covered in Australia's
Kyoto Protocol targets.[30]
However, the Green Institute described offsetting emissions by replanting as
'slow and inefficient' and argued that tree planting should only be allowed to
create offsets under an emissions trading scheme in very limited circumstances.[31]
4.35
Another aspect of an emissions trading scheme that the committee was
interested in was whether there is a point at which plantations become more
valuable as a carbon sink, than for timber products. Ms Blakers outlined for
the committee the type of situation where there may be plantations that become
too expensive to cut down:
So the question of having wood as a joint product with carbon is
a really critical one. If you end up with a plantation and the current rules
for permanence say 70 years – that is, under the government's
greenhouse-friendly rules—if you are committed to holding your plantation or your
pool of plantations for 70 years, then the price of carbon will have gone up
enormously but the price of wood very likely will not have, and so you might
very well end up with plantations that you can never afford to cut down because
the carbon emissions cost will be too great.[32]
4.36
Mr Hansard indicated that NAFI had not done any modelling on this point.[33]
4.37
The committee also heard concerns about the environmental impacts that
may result if an emissions trading scheme was to result in an increase in
forestry at the expense of agricultural industries. Mr Charles McElhorne of the
NFF, outlined concerns that the NFF have about the balance between forestry
and agriculture in an emissions trading scheme:
I have been particularly focused on the perverse outcome
potential in the economic field, but there is also potential for perverse
outcomes in the environmental area. What are the water run-off and biodiversity
issues of replacing agricultural land with mass plantation forestry in order to
meet our Kyoto [Protocol] obligations? And what are the social implications of [an
emissions trading scheme] as well? We have to get those policy settings right.[34]
4.38
The Victorian Department of Primary Industries also noted the conflict
an emissions trading scheme could create as there was a shortage of suitable
land in that State for commercial carbon sinks:
Victoria's prime areas for plantation forestry are those with a
higher than average rainfall (over 600mm) and fertile, well drained soils,
which are also prime agricultural land.[35]
4.39
Professor Michael Young of the Wentworth Group of Concerned Scientists
expressed concern that the inclusion of forestry in an emissions trading scheme
would have impacts on water availability:
...another very important thing that Australia is still finding it
greatly difficult to face up to. That is the issue of the interception of
rainfall by forests – particularly in plantation forests. Your discussions and
the evidence you have received have talked about the plans to set up an
emissions-trading system from 2010. It will give people credits for planting forests.
Forests tend to get planted in high rainfall areas and areas where roots can
access water free of charge. It is high security water; it is the water that is
taken first. When you plant a tree, it intercepts all the water it needs before
it lets any run off. If you plant a tree close to a river and it gets its roots
into the river or into the aquifer, it takes all the water it needs. It grows
on hydroponics. If Australia goes into an emissions-trading system that gives
people carbon credits for planting trees and does not bring water accounting
into that regime then this nation could be in very serious strife as we dry up
our rivers.[36]
4.40
While acknowledging that trees grow better in high rainfall areas,
representatives from NAFI argued that the forest industry's strategy was to
plant trees in areas that benefited downstream agricultural industries:
...the strategy for the forest industry going forward is based on
being smart about where we put trees in the landscape so we can reduce salinity
... because this really will help agriculture. As we know, we cannot grow food
crops with saline water. However, if we are smart about where we put trees in
the landscape we can actually decrease salinity ... and actually increase our
ability to grow food.[37]
Committee view
4.41
The committee understands the difficulties in including the agricultural
sector in an emissions trading scheme from its proposed commencement date in
2010. The committee encourages the Government to put substantial resources into
investigating and resolving the difficulties before considering including
agriculture in the Scheme.
4.42
The committee recognises that forests play an important role in the
mitigation of greenhouse gas emissions. However, the committee is equally
concerned that as currently structured, there is the possibility the Scheme will
not maintain the important balance between the forestry and agricultural
sectors, resulting in adverse social and environmental consequences. The
committee believes that introducing full carbon accounting as the framework for
an emissions trading scheme would go some way to redressing this imbalance. The
committee notes that this recommendation is in line with the proposed approach
of the Garnaut Review on Climate Change.[38]
Recommendation 2
4.43
The committee recommends that the Government should provide for a full
carbon accounting framework in relation to agricultural and forestry sectors in
a domestic emissions trading scheme.
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