Australian farmers and environmentalists aren’t always the most comfortable bedfellows, but most would agree that significant new funding will be needed to deal with the many environmental and natural resource challenges facing rural Australia.
Without wanting to let governments off the hook, most would also agree that we need to look beyond the public purse and start tapping into new funding sources.
The Carbon Farming Initiative (CFI) might be part of the answer.
The CFI allows organisations to offset their carbon costs by investing in projects such as tree plantings (and other measures), thereby creating incentives for farmers, forest growers and land managers to reduce emissions from agriculture and increase carbon storage in soils and vegetation. While it is still early days for the CFI, anecdotal evidence suggests there is a good level of interest from corporate Australia, particularly those with existing business interests in rural and regional areas.
Depending on who you believe, the CFI will offset between 5 and 39 million tonnes of greenhouse gas emissions per year by 2020, with a total annual value of between $75 million and $585 million (assuming a conservative carbon price of $A15 per tonne). The upper end of this estimate is around 30 per cent more than what the Australian government spends annually on natural resource management and landscape restoration through the Caring for our Country Program. Even the lower end estimates would be a welcome and much needed boost.
Not surprisingly, the CFI has captured the imagination of the many organisations and individuals working on conservation and social enterprise initiatives across Australia. However, the various types of ‘co-benefits’ that may be associated with an offset project are not well understood in the Australian market.
Co-benefits are the direct positive outcomes associated with an offset project that are additional to the emissions avoided or the carbon stored – benefits which are not necessarily priced into the value of an offset. These co-benefits may be the positive biodiversity, social and/or employment outcome that occurs as a direct result of an offset project.
For example, well designed tree planting projects supported by the CFI could deliver significant co-benefits, such as improved biodiversity, management of salinity and increased connectivity between pockets of remanent vegetation.
The CFI registry allows for the voluntary documentation of co-benefits associated with a project in order to assist offset buyers to support projects with additional environmental or social value. However, under the CFI, there are no firm rules guiding the definition, measurement or verification of co-benefits arising from projects. This means there is a real risk of spurious claims and/or an overestimation of a project’s co-benefits.
The quantification of co-benefits is not straightforward and this can be seen in the international compliance market, where the CDM has failed to consistently deliver such development or sustainability benefits – even though this was one of its original intentions stated in Article 12 of the Kyoto Protocol. Studies have indicated that this is likely due to a trade-off between supplying cheap emission credits, promotion of sustainable development and maximising emission reductions.
Internationally there are several examples of independent frameworks to assess and certify that offset projects are delivering social and environmental co-benefits. Perhaps, the most widely recognised example is the Gold Standard, which has certified over 700 carbon offset projects in around 50 countries. Interestingly, Gold Standard projects generally attract a premium above the market price for carbon credits.
While there is some evidence that measureable and verifiable co-benefits can make particular carbon offset types more attractive, this is largely restricted to the voluntary carbon market and has not become mainstream. This is reflected in the limited market presence of credits with associated co-benefits in the Kyoto compliance market, potentially indicating limited interest from carbon market participants to pay for premium offsets.
Australia’s domestic offset scheme will bring a new dynamic to the international market, particularly if plans to link the Australian carbon and offset markets to the international voluntary and compliance markets from July 1 2015 go ahead. This will be the first national government-backed offset scheme that is fully integrated into the linked emissions trading schemes, and it has the potential to create additional demand for Australian offsets including CFI projects.
If the process to evaluate such activities (i.e. that have agricultural productivity or environmental co-benefits) is not well defined, then it is unlikely that these projects will attract a premium in the international market, nor are they likely to encourage additional private sector investment.
So, while the CFI is certain to get trees in the ground, how do we ensure it delivers greater bang for its buck, and much needed environmental results?
The CFI has the potential to deliver tremendous co-benefits, if there are clearly defined systems and processes to measure, verify, value and monetise these units. Developing these systems will help to drive large scale uptake and investment in the CFI. In order for these systems to be widely accepted, there is a need for a consistent standard and/or guideline to frame the consideration of co-benefits.
In the period before the Australian market links with the international market, the CFI represents an ideal test-case in which to consider the measurement of co-benefits.