Carbon Farming in the enterprise mix

Carbon Farming in the enterprise mix
At a glance…the farm
In summary…the ERF on farm
• 21,500 ha property
• ERF projects can make a valuable contribution to farm income
if planned as part of the overall enterprise mix
• South of Cobar in Central NSW
• Average annual rainfall 320 mm
• Red loam soils with ridges
• Potential income from ERF needs to be compared to existing
or alternative enterprises
• Potential gains are sensitive to carbon price
• Some ERF methods have a significant time lag between
commencement and first payment
• Some ERF methods require ongoing commitment beyond the
payment period
• Some ERF methods have significant co-benefits for production
and environmental values
• Box/white cypress woodland &
derived native grassland
• Mixed grazing – dorpers, goats &
cattle
This case study has been prepared by RDA Orana, Carbon Farmers of Australia and
Vanguard Business Services as an illustration of how carbon farming can be incorporated
into the enterprise mix in a whole farm plan. It is not intended to provide
recommendations, only to show possibilities.
While this farm is fictitious, the information presented is based on real data from farms in
the area, and is therefore as accurate as possible. The assistance of Harvey Collerton (Western Local Land Services) in providing spatial
information is gratefully acknowledged.
This case study considers three approved methods under the Emissions Reduction Fund –human-induced regeneration, soil carbon
sequestration (measured) and beef cattle herd management. The intention is to show that carbon farming methods do not need to apply
across an entire farm, and can be combined to reach the minimum threshold for participation in the ERF auction.
By considering the entire farm and enterprise mix from both a productivity and financial perspective, it is possible to identify areas where
carbon farming produces better financial returns than existing enterprises, and provides a range of co-benefits that enhance productivity and
biodiversity values across the property.
Current enterprise mix
Dorpers
The farm currently runs 3,000 head of dorper ewes, producing lambs that are
turned off at around 6 months. Lambing percentage is 110%, and is at times
adversely affected by poor weather at lambing, fox predation and lack of feed.
The sheep are run predominantly over the grassland area, at an average stocking
rate of 0.6 DSE/ha depending on season. Last year this enterprise generated a
gross margin of around $40/DSE, or $24/ha.
1
Cattle
On average, the farm runs 100 head of shorthorn/santa gertrudis cows.
Cows are joined to santa bulls in a self-replacing herd. The calves are sold
as weaners, depending on seasonal conditions.
The cattle are run
predominantly over the grassland area. Last year the beef cattle enterprise
returned $22/DSE or $13.20/ha.
Rangeland goats
This enterprise is based on feral goats that are
run in six goat-proof TGP fenced paddocks in
the less productive areas of the property.
Goats are sold any time of the year,
depending on season.
The domestic goat trade is the target market.
Goats are sold into this market every few months, depending on seasonal conditions, weighing between 24 to 33 kg
liveweight. Around 1,500 (total 2,250 DSE) goats are sold each year, historically around the $35-40/hd net of selling
and transport costs. Recently prices have substantially increased to up to $70-80/hd making this enterprise very
profitable. However, it is putting a strain on the sustainability of this less productive country. The gross margin for
goats is generally around $45/DSE, or $26/ha.
Productivity Issues
The landholder recognises that the current enterprise mix on the property is not sustainable in the long term, and
changes need to be made to ensure that the property can be maintained within the family for the future. However,
changes to enterprise mixes or management incur costs; under current financial circumstances, the landholder has
limited capacity to absorb these costs.
Grasslands
The country ranges from rocky hills to creeks, with mainly red sandy loam soils. The main trees and shrubs are
bimble box, white cypress, wilga, belah, kurrajong, red box, mallee and invasive native shrubs such as turpentine,
hopbush and budda bush. Prominent grasses include speargrass, wire grass, white top, panics, Paspalidium and
Digitaria species.
About half (13,585 ha) of the total area of the property comprises derived native grasslands with some trees
remaining. Most of the farm’s productivity comes from this area. The pasture is based on perennial species,
predominantly native grasses with some clover in winter under favourable seasonal conditions. The landholder is
concerned that this area is being run down, and that the farm’s most productive areas will not be sustainable under
increased climate variability.
Ridges
Ridges comprise approximately 4,500 ha (21%) of the property, in two blocks of 3,197 and 1,306 ha respectively.
Some areas of the ridges have been cleared in the past, and regrowth has been suppressed through managed
grazing by goats and dorpers, unmanaged grazing by wild goats and other herbivores, and occasional application of
herbicides. However, pasture growth on these areas is poor; these areas are prone to erosion and some gullies have
begun to form over the last 5 years. The soils have poor water-holding capacity and pasture dries off rapidly. There
is little pasture production over summer.
2
Scrub
Approximately 3,115 ha (14.5%) of the property is
covered with invasive native scrub, comprising
mainly white cypress pine and budda with some
eucalypt. A Property Vegetation Plan issued in
December 2012 allows for clearing of this area,
but lack of capital has prevented the area being
developed. Approximately 2,700 ha of the total
area of INS are on relatively flat terrain that has
good potential for pasture production once
cleared. The remainder includes slopes and ridges
that have more limited productive potential.
Opportunities
The landholders would like to increase the cattle herd to 150 head, in response to current strong markets, and
projections that the market will remain strong for at least the next 5-6 years. Cattle have an important role in the
rehabilitation and management of land. While demand for goats is strong, there are issues with product quality
when using rangelands goats. The landholders would like to improve the quality of the goat herd so they can access
more lucrative markets; however, this would also require access to better quality grazing. With an increase also
planned in the cattle herd, the existing pasture areas will not be able to sustainably support all the stock.
Options:
Improve existing pastures
One option is to improve the existing pastures through addition of exotic species to provide higher quality feed at
critical times of year. The capital outlay is significant, and productivity improvements will depend heavily on
favourable seasonal conditions. Clearing large areas of INS is also of economic concern.
However, improvements to the existing pastures can also be achieved through management of grazing, specifically
Holistic Planned Grazing, without the need for fertiliser or exotic species.
Clear INS as per PVP
The existing PVP allows for clearing of the whole area of INS. However, the costs of clearing INS on the slopes and
ridges are the same as that for the flat country, with much lower potential to recoup costs through increased
productivity. The capital outlay is significant, and is not an option under current financial constraints. It is estimated
that clearing would cost approximately $130/ha, with ongoing costs associated and regrowth suppression.
Carbon Farming
Relevant methods
Carbon farming methods relevant to this property are:
1. Human induced regeneration over previously cleared areas and areas in which regeneration is being
suppressed,
2. Improvement of soil carbon across the pasture areas, and
3. Management of the beef cattle herd.
The landholder has heard about the successful ERF bids for avoided deforestation projects in the first auction, but is
ineligible as the PVP was issued after 1 July 2010.
3
Possibilities for investigation are:
1. Develop projects in which each of four land units (two areas of erosion-prone cleared ridges, an area of INS
and a grassland area) are allowed to revegetate, under the Human-Induced Revegetation (HIR) method.
Capital outlay would be limited to some additional fencing to control total grazing pressure.
2. Develop a project in which SOME of the grassland area is managed to increase soil carbon. This method
requires baseline soil testing, and therefore has potentially significant up-front costs. As a result, only
2,500 ha of the total area are considered for carbon farming initially.
3. Develop a project in which the beef cattle herd is managed differently to reduce methane emissions and
generate carbon credits.
4. Combine the carbon farming methods for the benefit of whole-farm productivity and profitability.
Emissions Reduction Fund (ERF)
Participation in the ERF auction system requires a minimum bid of 2,000 Australian Carbon Credits (ACCUs) annually
for the life of the contract. Different projects can be aggregated at the bid level to reach this threshold, as for
Option 4.
Other carbon markets
The ERF auction system is not the only option for selling carbon credits. A secondary market exists among consumers
who want to voluntarily offset their carbon emissions; this market provides opportunities for sale of small parcels of
credits, and also for direct marketing by the landholder. The minimum requirements for ERF participation do not
apply, and smaller projects may be viable without aggregation.
Making choices
The landholder compared the known gross margins for existing enterprises with the likely returns from the four
carbon farming scenarios above. For the purposes of this illustration gross margin is taken to be gross income less
the operating costs associated with that enterprise. It does not include fixed costs.
Livestock enterprises
Gross margins of the livestock enterprises have been calculated (Figure 1). The goat market is currently very
lucrative, and operates predominantly on ridge areas that are not productive for the dorper and cattle enterprises.
50
$/ha
40
30
20
10
0
Beef
Goats
Sheep
Figure 1: Livestock enterprise gross margin ($/ha)
4
Carbon farming
A carbon agent who was already operating in the area was engaged to provide advice on the calculation of likely
returns from the carbon farming scenarios above.
For this case study, the number of ACCUs likely to be generated by each of the scenarios listed above has been
calculated as required by the relevant method. A range of assumptions has been made in each case, and these are
listed for each method.
HIR method
The Human Induced Regeneration method is based around allowing previously cleared land to regrow to reach
forest cover, forming an even-aged forest. Key to this method is that the regeneration must be from in situ material
such as seed, roots and tubers. It therefore differs from those methods relying on sowing of seed or planting of
seedlings to create forest potential.
While there is no requirement for land to have zero woody vegetation to be eligible for this method, there are
limitations based on the nature of the existing woody vegetation. As a consequence, areas that already have nonforest vegetation, but over which further vegetation growth is being suppressed, may be eligible. Carbon accrual is
based only on the additional carbon from the regeneration that results after suppression activities cease. A carbon
agent can advise on eligibility in specific cases.
Once a project commences, areas where regeneration does not occur must be excluded. Failure to regenerate may
be due to presence of infrastructure such as roads, degradation of soil (such as scalding or erosion), or lack of source
material.
Project proponents may select either 25 year or 100 year duration for their project. Shorter projects have a
discounted rate of ACCU generation.
For the purposes of this illustration, carbon sequestration has been estimated separately for each land unit – that is,
two ridge units, the INS area and the grassland area. Various combinations of these are then shown as possibilities
for project development, depending on the eventual aims of the landholder.
Assumptions
Assumptions were required in calculating the relative costs and returns of these scenarios for the HIR method.
•
•
•
•
•
•
•
•
•
•
The HIR method project area is largely fenced already, and additional fencing requirements are minimal.
10 years of regrowth suppression history is available as per the HIR method requirement.
The INS area is eligible for HIR project status.
The landholder has elected the 25 year option for HIR carbon sequestration, accepting a 20% reduction in
the carbon estimate as per the method.
The price for each ACCU is $13.95 at ERF auction.
Different Carbon Agents have different fee structures, and these may be negotiable. For this case study, the
negotiated fee is 30% of the proceeds of ACCU sale. This has already been deducted in the calculations,
showing only the revenue to the landholder (70% of proceeds).
The first report of the HIR method area will be done at 2 years and reported yearly thereafter.
Audit costs are incurred in Years 2 and 10.
The landholder pays the cost of auditing and reporting prior to being able to claim ACCUs. These costs are
included in the calculations.
Audit costs have been allocated predominantly to the Grasslands area. Ridge and INS areas have small audit
costs as an adjunct to the “main” area. Total audit costs will be in the order of $20-25k, largely independent
of the total area under project. This means that the costs shown in the tables below for INS and ridge areas
will change for scenarios in which the grasslands area is not part of the project. As this amount is minor over
5
•
•
the ten year period, no adjustment has been made in the comparisons with the business as usual situation in
each scenario.
Regeneration has occurred across 85% of the area in each management unit other than Grasslands, which
has 75% regeneration area. However, as it is assumed that there will be minimal productive use of the
excluded areas, gross margins for these have been calculated across the entire area.
Each project has only been costed for 10 years. Carbon will accrue, and ACCUs may be claimed, for at least
another 10 years (subject to changes in Government policy). No consideration is made for potential revenue
after the crediting period.
6
Table 1: HIR method on “Ridge” area (total area 3,197 ha).
C mass
YEAR
CO2-e
Sequestration
(from model)
(t/C)
Revenue to Landholder $
Discounted Claim
Cumulative
Net Claim
This Report
Cumulative
Audit Costs $
This Report
2016
0
Negligible
2017
5.7
2018
115.5
424
326
326
$
3,185
$
3,185
2019
531.3
1,948
1,500
1,174
$
14,649
$
11,464
2020
1,346.8
4,938
3,802
2,302
$
37,131
$
22,482
2021
2,528.9
9,273
7,140
3,338
$
69,722
$
32,591
2022
3,982.2
14,601
11,243
4,103
$
109,788
$
40,066
2023
5,617.2
20,596
15,859
4,616
$
154,866
$
45,078
2024
,356.8
26,975
20,771
4,911
$
202,827
$
47,961
2025
9,146.8
33,538
25,824
5,054
$
252,175
$
49,348
2026
10,934.6
40,093
30,872
5,048
$
301,464
$
49,289
Gross Margin per ha per year over 3,197 ha for 10 years
-$
2,000
-$
1,000
$
9.33
Table 2: HIR method on “Ridge 2” area (total area 1,306 ha).
C mass
YEAR
2016
CO2-e
Sequestration
(from model)
(t/C)
0
Revenue to Landholder $
Discounted Claim
Cumulative
Net Claim
This Report
Cumulative
Audit Costs $
This Report
Negligible
2017
3.1
2018
62.2
228
176
176
$
1,715
$
1,715
2019
286.1
1,049
808
632
$
7,889
$
6,174
2020
725.3
2,659
2,048
1,240
$
19,995
$
12,107
2021
1,361.8
4,993
3,845
1,797
$
37,546
$
17,550
2022
2,144.4
7,863
6,054
2,210
$
59,122
$
21,576
2023
3,024.9
11,091
8,540
2,486
$
83,396
$
24,274
2024
3,961.7
14,526
11,185
2,645
$
109,223
$
25,827
2025
4,925.6
18,060
13,907
2,721
$
135,798
$
26,574
2026
5,888.3
21,591
16,625
2,718
$
162,340
$
26,543
Gross Margin per ha per year over 1,306 ha for 10 years
-$
2,000
-$
1,000
$
12.20
7
Table 3: HIR method on “INS” area (total area 3,115 ha).
C mass
YEAR
CO2-e
Sequestration
(from model)
(t/C)
Revenue to Landholder $
Discounted Claim
Cumulative
Net Claim
This Report
Cumulative
Audit Costs $
This Report
2016
0
Negligible
2017
9.9
2018
199.1
730
562
562
$
5,489
$
5,489
2019
915.7
3,358
2,585
2,023
$
25,246
$
19,757
2020
2,320.8
8,509
6,552
3,967
$
63,983
$
38,737
2021
4,357.0
15,976
12,301
5,749
$
120,121
$
56,138
2022
6,859.4
25,151
19,366
7,065
$
189,111
$
68,990
2023
9,673.6
35,470
27,312
7,945
$
266,699
$
77,588
2024
12,666.5
46,444
35,762
8,450
$
349,212
$
82,513
2025
15,744.5
57,730
44,452
8,690
$
434,073
$
84,861
2026
18,817.4
68,997
53,128
8,676
$
518,793
$
84,720
Gross Margin per ha per year over 3,115 ha for 10 years
-$
2,000
-$
1,000
$
16.56
Table 4: HIR method on “Grassland” area (total area 13,858 ha).
C mass
YEAR
(t/C)
2016
CO2-e
Sequestration
(from model)
Discounted Claim
Cumulative
Revenue to Landholder $
Net Claim
This Report
Cumulative
Audit Costs $
This Report
Negligible
2017
35.3
2018
710.6
2,605
1,954
1,954
$
19,082
$
19,082
2019
3,268.6
11,985
8,989
7,035
$
87,774
$
68,692
2020
8,284.9
30,378
22,784
13,795
$
222,481
$
134,707
2021
15,556.8
57,041
42,781
19,998
$
417,757
$
195,276
2022
24,496.5
89,820
67,365
24,584
$
657,822
$
240,064
2023
34,554.3
126,699
95,024
27,659
$
927,912
$
270,090
2024
45,255.4
165,936
124,452
29,428
$
1,215,276
$
287,364
2025
56,266.2
206,309
154,732
30,280
$
1,510,957
$
295,681
2026
67,263.7
246,634
184,975
30,243
$
1,806,283
$
295,325
Gross Margin per ha per year over 2,500 ha for 10 years
-$
20,000
-$
15,000
$
12.78
8
If the entire property were to be nominated for HIR projects, the relative contribution of each land unit to the overall
total of ACCUs would vary substantially, as expected from the differing areas (Figure 2). However, the rate of
accumulation of carbon per hectare also differs (Figure 3). Allowing the existing INS areas to thicken to reach forest
cover would sequester carbon at a higher rate than starting with no/minimal woody cover on the ridge areas.
Grassland
Ridge
Ridge 2
INS
Figure 2: Contribution of each land unit to HIR ACCUs
Grassland
INS
Ridge
Ridge 2
Figure 3: Rate of ACCU generation of each land unit under HIR
Soil Carbon method
There are two methods relating to sequestration of soil carbon – one based on modelled data, and one based on
measured data. This case study used the measured soil carbon method over 2,500 ha of the total grassland area.
The basis of the method is changes to grazing management that allow carbon to build up in the soil. This method
therefore works well in situations where the landholder is currently set-stocking and wants to move to a timecontrolled grazing system.
This method has strong co-benefits. Improved biomass above and below ground is necessary to increase soil carbon;
soil water holding capacity and soil structure are improved as a consequence, and both drought tolerance and
overall productivity are improved.
However, the costs of implementation can be a barrier:
•
Soil testing is currently about $25/ha, but can be as high as $50/ha. Testing is mandatory to establish
baseline carbon levels, and in order to claim and sell ACCUs.
9
•
•
This cost favours a five-year reporting period, creating a significant lag between outlay and income.
The cost of “wire and water” needed to manage grazing to achieve carbon sequestration.
Assumptions used in these calculations are listed below.
Based on these costs, calculations of net income have been done for two carbon prices: $13.95 per tonne (the
average price paid in the first ERF auction, Table 1), and $25 per tonne (current retail price, Table 2), for 10 years
(the duration of an ERF contract).
ACCUs are generated for the life of the project, for 15 years past the original contract period. However, potential
prices and sales mechanisms are very uncertain beyond this, so the potential income has not been quantified for
this period.
No income is generated from this project for the first five years. The landholder must therefore consider how to
manage the reduced income from the project area as a result of changed management practices during this period.
Options may include accepting a lower farm income (“short term pain for long term gain”), seeking additional
income through temporary expansion of the goat enterprise conducted on the less productive country, bridging
finance, seeking off-farm income.
Soil carbon could be considered “gourmet” carbon – the small quantities generated could be sold independently of
the ERF ‘reverse auction’ which favours high volumes. Opportunities include:
•
•
•
“Branding” of farm products which are sold with the carbon credit attached.
Sale of soil carbon credits direct through a website.
Direct marketing to a local big polluter, capitalising on their social responsibilities and desire to build
community goodwill.
Assumptions
Assumptions were required in calculating the costs and returns of this method.
•
•
•
•
•
•
•
There are no impediments to the landholder undertaking carbon farming methods.
The first audit/report of the soil carbon method area will be done at 5 years.
The landholder has elected the 25 year option for soil carbon sequestration, accepting a 20% reduction in
the carbon estimate as per the method.
The price for each ACCU is $13.95 at ERF auction, and $25 by private sale on the secondary market.
The Carbon Agent charges $10,000 per year up-front fees.
The landholder pays the upfront cost of baseline soil carbon testing. This has not been included in the costs.
The landholder pays the cost of auditing and reporting prior to being able to claim ACCUs. These are
included in the costs.
10
Table 5: Carbon sequestration, generation of ACCUs and net income for carbon price of $13.95/t.
Soil Carbon
CO2e
Gross Income
Costs
YEAR
Increase (t/ha)
t/ha
(Carbon x
3.67)
CO2e
t/2,500 ha
Discounted
CO2e
t/2,500 ha
Carbon Price $13.95
2016
initial
measurement
0
0
0
N/A
2021
2
7.34
18,350
14,680
$
204,786
2026
3
11.01
27,525
22,020
$
307,179
$
10 year total
5
18.35
45,875
36,700
$
511,965
$
Audit Cost
Net income
Carbon
Agent
Re-measure
$
-
$
-
$
15,000
$
15,000
$
@$13.95/t
-
$
-
40,000
$ 50,000
$
99,786
$
35,000
$ 50,000
$
222,179
$
75,000
$ 100,000
$
321,965
$
12.88
Gross Margin per ha per year over 2,500 ha for 10 years
Table 6: Carbon sequestration, generation of ACCUs and net income for carbon price of $25/t.
Soil Carbon
CO2e
Gross Income
YEAR
Increase (t/ha)
t/ha
(Carbon x
3.67)
CO2e
t/2,500 ha
Discounted
CO2e
t/2,500 ha
Carbon Price $25
2016
initial
measurement
0
0
0
N/A
2021
2
7.34
18,350
14,680
$
2026
3
11.01
27,525
22,020
10 year total
5
18.35
45,875
36,700
Costs
Audit Cost
Net income
Re-measure
$
-
$
-
367,000
$
15,000
$
$
550,500
$
-
$
917,500
$
15,000
Gross Margin per ha per year over 2,500 ha for 10 years
Carbon
Agent
$
@$25/t
-
$
-
40,000
$ 50,000
$
269,500
$
35,000
$ 50,000
$
465,500
$
75,000
$ 100,000
$
735,000
$
29.40
11
Beef Cattle Herd Management method
The Beef Cattle Herd Management method is based around closer management of stock to provide faster weight
gain and more rapid turnoff of sale animals. It requires good records for at least the three years prior to the
commencement of the project.
Per animal gains are small, and dependent upon the herd characteristics at the start of the project. For example –
gains will be greater in moving from selling steers to selling yearlings or weaners than if animals are already turned
off at a younger age. As a result, a herd size of at least 500 is generally required to make a project worthwhile.
However, auditing costs are not high for this method. Consequently, it may be worth considering as a contributor to
an aggregated project with a smaller herd.
Returns by enterprise
Using the returns from the tables above, and for livestock enterprises, the per hectare gross margins for the possible
enterprises are shown in Figure 4. Livestock gross margins are higher than those for the carbon sequestration
projects, however livestock returns are highly variable and are dependent upon seasonal conditions and market
factors. As a result, significant changes in either of these parameters may have a substantial impact on the relative
value of each enterprise.
There are also co-benefits of soil sequestration projects; these have been discussed previously, and are difficult to
quantify for the purposes of comparative values.
50
$/ha
40
30
20
10
0
Figure 4: Gross Margins by enterprise ($/ha)
The landholder could combine the opportunities presented by the ERF to improve productivity of the farm as well as
generate income in the short-medium term. Many potential scenarios are possible; some of these are presented
below.
Scenario 1: Put the entire property under HIR projects.
This approach would preclude the running of stock until such time as the project area has reached forest cover.
Stock may only be grazed to the extent that forest cover is not adversely affected for the life of the project. Based on
Tables 1-4 above, the total income over the ten year contract period would be approximately $2,789,000.
12
Approximately 25% of the grassland area has been assumed to be in exclusion zones; approximately 3,500 ha would
therefore be available for continued livestock grazing, subject to appropriate fencing to exclude stock from the
carbon estimation areas. About 15% of the other units would also be excluded, but these are not very productive
and would not contribute significantly to overall revenue.
The average annual income from the ERF projects would be $278,900. However, it is important to realise that the
return in the early years would be much less. If it is assumed that the livestock would generate the same income in
each of the next ten years, and carbon income would be as per the tables above, the relative income would be as
shown in Figure 5.
$500,000
$400,000
$300,000
Livestock
$200,000
$100,000
HIR whole farm
$0
2016 2017
2018 2019
2020 2021
2022 2023
2024
2025
2026
Figure 5: Comparison of annual income from existing livestock and
potential HIR enterprises
Livestock,
$4,556,750
HIR whole
farm,
$2,788,880
Figure 6: Total income from existing livestock and
potential HIR enterprise over 10 year period
Existing livestock enterprises would provide
a better return until 2023, year 7 of the 10
year contract. Over the ten year period,
total income from livestock would exceed
that from the HIR projects (Figure 6).
However, as noted above, livestock
enterprise gross margins are sensitive to
seasonal conditions and market factors that
are difficult to predict over the medium to
long term, and it is doubtful that income
would be sustained at the same level.
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Scenario 2: Put only the ridge areas under HIR
projects.
Whole Farm
(ERF)
$3,280,804
This approach would enable further development
across the remaining areas of the property, only
restricting the use of the least productive areas
(although these areas support the goat enterprise,
which has the highest gross margin). After the first
five years, the income would total approximately
$100,000.
Whole Farm
(no ERF),
$4,556,750
Funds generated from the sale of ACCUs could be
used for a range of purposes, including:
•
•
•
Figure 7: Total income from existing livestock and
Reducing debt.
potential HIR enterprise on ridges only over 10 year
Clearing of INS – if clearing costs $130/ha,
period
this would allow clearing of approximately
700 ha, increasing the total productive area of the farm to enable increased carrying capacity.
Improving fencing to facilitate time-controlled grazing, with or without a soil carbon sequestration project.
However, at current prices, the goat enterprise generates significantly higher gross margins per hectare than that
from carbon credits under the HIR method - $26 and $9 respectively. As a result, there is a difference of about
$1,276,000 (28%) in total farm income, based on current livestock gross margins. This suggests that on economic
grounds there is no benefit to participating in the ERF to revegetate the ridges. However, the landholder should also
consider other potential benefits of revegetation, such as reduced risk of erosion and other sustainability and
biodiversity benefits. Although these are difficult to assign monetary value to, they may be substantial.
Scenario 3: Put the ridges and INS areas under HIR projects
As the goat enterprise is conducted largely on the
ridges, placing the ridge areas under an HIR
project would necessitate eliminating the goat
enterprise, or reducing numbers of dorpers
and/or cattle to allow the goats to be run on
grassland areas. This case study assumes the
goat enterprise has been discontinued.
In this scenario, HIR projects (and hence grazing
restrictions and grazing management obligations)
would apply over 36% of the total property area.
There would be no restriction on the grasslands,
which are the most productive area of the
property. Over the ten year period, there is little
difference in total income (Figure 8). This is
largely because the scenario assumes negligible
income from the INS area under current
enterprise management, while ERF participation
results in significant income from this area.
Whole Farm
(ERF)
$4,425,597
Whole Farm
(no ERF)
$4,556,750
Figure 8: Total income from existing livestock and
potential HIR enterprise on ridges & INS only over 10
year period
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Scenario 4: Put the ridge areas under HIR projects and 2,500 ha of grassland under Soil C project
Whole Farm
(ERF)
$4,228,769
Whole Farm
(no ERF)
$4,556,750
Figure 9: Total income from existing livestock and
potential HIR enterprises on ridges and 2,500 ha of
grassland over 10 year period
As for scenario 3, the goat enterprise would
either need to be moved or eliminated under
this scenario. It is assumed for this case study
that the goat enterprise has been
discontinued, and closer management of
grazing over the 2,500 ha of the Soil C project
area will allow cattle and dorper numbers to
be maintained at their existing levels.
However, this would be dependent upon
seasonal conditions; comparisons may change
markedly under poor seasonal conditions.
While there is about 7% lower income under
the ERF scenario (Figure 9), as for scenarios 2
and 3, livestock income is highly dependent
upon external market and seasonal conditions.
As for scenario 2, there may be significant co-benefits as a result of carbon sequestration. Building up carbon levels
in the soil through improved grazing management would be expected to increase the productivity of the project
area, and may compensate to some extent for seasonal variability. However, this is difficult to quantify in a
hypothetical setting.
Other co-benefits may include biodiversity values, enhanced infiltration of rainfall, better shade and shelter for
livestock.
Impacts on whole farm performance
Depending on his overall goals, the existing financial position and the carbon sequestration projects chosen, the
landholder could use carbon farming capital to fund:
•
•
•
•
Fencing pasture areas into smaller paddocks to facilitate rotational grazing, providing better management of
parasites, weeds, groundcover and pasture composition.
Provision of additional watering points associated with smaller paddocks. The landholder will use solarpowered pumps to move water to troughs from the existing water sources.
Remedial earthworks to prevent extension of the erosion gullies until the regeneration is sufficient to
achieve this.
Clearing and fencing of INS over those areas capable of becoming productive.
A holistic approach to the planning of carbon farming projects and the further development of other farm areas
would enable the landholder to also improve overall biodiversity values for the large number of native species that
occur in the area.
Checklist
Further information is available from the Clean Energy Regulator: www.cleanenergyregulator.gov.au/ERF/.
General considerations
In addition to the considerations above, undertaking a carbon farming project may require consultation with a range
of other parties, including:
•
Bank/financier
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•
•
Accountant
Western Lands Commission (for Western Lands Lease)
Method-specific considerations
HIR method
• Minimum area is 0.2 ha, of naturally-regenerated species that will attain at least 2 metres height and 20%
canopy cover.
• Cannot be grazed until regeneration reaches minimum height and canopy cover requirement; subsequent
grazing must not inhibit forest cover.
• Events such as fire can affect carbon sequestration and must be reported and accounted for.
• Carbon emissions associated with management of HIR must be recorded and accounted for.
• Use of fertiliser or soil amendments to promote growth is prohibited.
• There will be a lag between project registration and potential income of 3-5 years.
• More regular accounting will incur higher audit costs and may offset gains from more frequent generation
and sale of ACCUs.
• It is likely that in future, the Reforestation Modelling Tool (RMT) used in this case study will be replaced by a
requirement to use FullCAM. Results are therefore likely to differ, and this should be taken into
consideration.
Soil Carbon method
Some important aspects of the measured soil carbon method are:
•
•
•
•
•
•
•
Measurements of soil carbon, done according to specific rules by an accredited person.
Monitoring, reporting and auditing requirements similar to those of other methods.
Choice of a wide variety of changed management actions to increase soil carbon, but improved grazing
management is fundamental to the method.
There is no ‘calculator’ for this method – ACCUs are generated based on measured increases in soil carbon.
If there is a decrease in soil carbon (for example, from a bushfire), ACCUs cannot be claimed until the soil
carbon levels exceed the previous (paid) level.
For registration of a project using this method, it must be shown that the changed management actions have
a reasonable chance of improving soil carbon.
There is a choice of 25 year or 100 year project length. Selection of 25 year project results in a 20% discount
in ACCU accumulation.
Beef Cattle Herd method
Key considerations for this method include:
•
•
•
•
•
•
Requirement for 3 years of history of live weights and live weight gains to establish the ‘baseline’; these can
come from a variety of sources.
Must use the calculator.
Method for reduction of methane must have some evidence of working (doesn’t have to be peer reviewed
data, but some data).
A wide range of activities is allowed, from genetics to better feed quality using grazing management (which
could also be increasing soil carbon), new licks etc
Activities can be changed during the project, as long as they are consistent with the method.
The herd is divided into the ‘permanent herd’- animals which are in the herd ALL year around, and the
‘Transient herd’ -those which come and go through births, deaths, sales, purchases etc.
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Wrapping up
Carbon abatement and sequestration schemes offer a range of opportunities for those willing to take the time to
investigate them. Carbon should be considered as a commodity in the same way that livestock and crops are, and
can be included in a mixed farming enterprise with a balance of economic, sustainability and land management
goals.
However, as with any farm management decision, the benefits and costs should be carefully considered and
compared with the opportunities provided by other enterprises. For some methods, there will be a significant time
lag before any substantial income is realised. This may be a barrier to participation, despite higher economic returns
(and potential co-benefits) in future years.
For some properties, participation in the ERF provides much-needed capital to reduce debt load, and/or undertake
works elsewhere on the property to improve productivity and sustainability.
The ERF methods are complex; it is strongly recommended that a reputable carbon agent be consulted in
determining whether a carbon project is a viable option under the specific circumstances applicable to any farm
where a project is being considered.
Louisa Kiely
P: (02) 6374 0329
"Uamby" via Goolma, NSW 2852
E: [email protected]
www.carbonfarmersofaustralia.com.au
Mark Gardner
P (02) 6885 1925
F (02) 6885 5737
M 0419 611 302
PO BOX 1395, DUBBO NSW 2830
www.vbs.net.au
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