Camilla Roberts and Dr Madeline Mitchell lead Food Agility CRC’s carbon and natural capital research program.
The price of Australian Carbon Credit Units (ACCUs) tripled in the last 12 months, jumping from $17 per tonne in January 2020 to $55 per tonne in January 2022 - an all-time high not expected until the end of the decade.
Farmers are in a unique position to cash in on the boom because they can sequester carbon in soil and vegetation (the good carbon) to directly reduce atmospheric carbon (the bad carbon). This means they can generate carbon credits through sustainable farming practices and sell them to companies and countries trying to meet their own emissions reduction targets.
It’s a potentially valuable new revenue stream for farmers and carbon credits now rank in the top 50 Australian agricultural products by farm gate value. With La Nina rains expected to increase carbon sequestration, now is good time for farmers to consider whether they want to jump into the carbon market.
But farmers need to be aware that selling carbon credits means they can’t claim that same carbon towards their own net zero or low carbon claims. And in a market where consumers increasingly demand sustainable produce, those claims can be worth a premium.
Add in the high transaction costs, as well as a market in its relative infancy, the question of whether to sell or retain abated carbon is far from straightforward.
We’ve put together a list of some of the top questions and answers for those want to get across the basics of Australia’s emerging carbon market and what it means for farmers. For simplicity, we’ve focussed mostly on ACCUs.
Have we missed anything? Have you dipped your toe in the carbon market? We welcome your input and experiences in the comments.
What is an ACCU?
An Australian Carbon Credit Unit represents the abatement of one tonne of carbon dioxide or equivalent (CO2e). A farmer might earn ACCUs through sequestering carbon in soil or vegetation (the more carbon the better) or reducing the amount of CO2e that would ordinarily be emitted such as methane from cattle (the less carbon the better). An ACCU is personal property under the law and can be traded.
How do you generate an ACCU?
Farmers can register eligible offset projects with the Emission Reduction Fund (ERF), which is administered by the Clean Energy Regulator (CER). There are eight approved agricultural methods for generating an ACCU listed in the land category. There are also another 10 in the vegetation category and two under the savanna fire management categories that may be applicable to farmers. Check out some case studies on their website.
What other types of carbon credits are there?
Other international markets with varying standards, methodologies and approaches to co-benefits are also growing. For example, last year a NSW farmer sold credits to Microsoft on the voluntary market through a program based in the United States, although the methodology used for measuring the carbon attracted some criticism.
Why do companies buy carbon credits?
Unlike farmers, most companies can’t sequester carbon. Usually, their only options to meet net zero targets are to dramatically reduce the amount of carbon they emit and to buy credits. By buying enough credits to offset their remaining emissions, they can claim to be net zero or low carbon to their own customers.
How do you sell ACCUs?
Farmers can sell ACCUs to the Federal Government via the Clean Energy Regulator’s biannual auctions (primary market). Or, farmers can sell them to other entities, including private businesses and state governments, via a fixed commercial agreement at the prevailing market rate (secondary and voluntary markets).
There is a concerted move towards establishing a common, well-regulated market with agreed rules and methodology. Last year, the Clean Energy Regulator issued a call out for organisations to build the Australian Carbon Exchange, which will operate like an online stock exchange. Also last year, NAB launched a pilot international carbon exchange, partnering with NatWest, CIBC and Itau Unibanco.
How long do I need to maintain carbon levels when I sell credits?
The permanence requirements will vary depending on the scheme or conditions of the sale. With ACCUs, farmers choose a period of either 25 or 100 years.
Can I sell my credits and claim to be net zero / low carbon from those same credits?
No. That would be double counting. This was clarified at last year’s COP26 summit, where global leaders agreed new rules for voluntary carbon trading. Credits are considered personal property. So just as you can’t sell a tractor then count it as an asset on your balance sheet, nor can you sell a carbon credit then count it towards your own carbon emissions reduction. Farmers using their sustainability credentials as a brand proposition to gain traction in niche markets will need to consider this carefully.
What are the transaction costs for farmers?
Transaction costs for managing carbon abatement projects can be high. It's recommended to research federal and state government programmes that help subsidise these costs. Eligible farmers in Queensland can take advantage of offers like the $10,000 rebate for advice from registered carbon farming experts. The Federal Government also offers eligible ERF projects rebates of $5,000 to baseline soil carbon, which can cost as much as $20 per hectare and is a particular barrier for farmers. At Food Agility, we’re working on new, more affordable methods for soil carbon measurement in Australian rangelands but these are some way off yet.
Using brokers and third-party project managers is another cost, with commissions generally around 30% (although we’ve heard reports of some companies charging as much as 50%). This is because they provide a range of specialist services and often carry the risk. It pays for farmers to read the fine print and ensure they’re dealing with a reputable company with an established track record.
Where can I get reliable information about the carbon market?
The Clean Energy Regulator publishes quarterly market reports for those keen to keep an eye on how the Australian carbon market is evolving.