Carbon trading and the agribusiness
sector

Powerpoint Presentation to the Advisory Board of Agriculture (ABA) by Prof. Anthony Cheshire, Executive Director, Balance Carbon Pty. Ltd. (30 January, 2008)

Talk Outline

• Greenhouse effect and the carbon cycle
• Emissions Cap and Trade model
• Emissions markets
• Australia pre- & post-November 2007 election
• Agribusiness – opportunities

 What is the greenhouse effect

Carbon Dioxide Equivalents

Agriculture is at risk (e.g. change in wheat yield)

The Carbon Cycle

Australia Relies on Fossil Fuels

 Source: http://www.treepower.org

Nitrogen Cycle

Atmospheric Carbon

• Radiatively active gases cause the greenhouse effect

• Increase in labile pools / decrease in nonlabile pools
– Burning of fossil fuels
– Ocean acidification
– Soil degradation – loss of soil carbon
– Permafrost melting – methane release

Effects of Agriculture in Canada and North East USA

• Conversion native ecosystems to arable cropping
– loss of ~22% of the original soil organic C
– release 123 M tonne C to the atmosphere (worth between $2-5 billion!!)

• Drainage and cultivation
– additional release of about 15 M tonne C

• Management practices that enhance C storage
– fertilization and legume- and forage-based rotations
– adverse impact of nitrous oxide

Source: Gregorich, E. G., Rochette, P., VandenBygaart, A. J., Angers, D. A (2005)

Emissions Cap and Trade System

• The Cap
– Large emitters have right to emit to specified number of tonnes CO2-e
– Grandfathered based on historical precedent

• If actual emissions < cap
– you can trade remainder

• If actual emissions > cap
– you must buy the difference

Carbon as a Commodity: What?

Creating CO2 credits (or ERU’s – emission reduction units 1 ERU = 1 tonne CO2-e)

• Avoided emissions vs. baseline
– captured, stored, burned, efficiency, compost vs. landfill

• Renewable power generation
– biofuels, solar, wind, geothermal
– not nuclear

• Vegetation
– avoided deforestation, re-vegetation

Carbon as a Commodity: How?

• Rules clearly defined by scheme regulator

• Key criteria (common to all schemes and Kyoto)
- Measureable emissions reductions v. baseline
- Real time reductions
         *cf promise of future storage
- Ownership of savings can be proven
          = responsibility
- Not business as usual: barrier analysis
          *additionality

Kyoto - other way to create credits

Clean Development Mechanism (CDM) projects

- objective - developed countries meet emission reduction targets
- reductions achieved in a developing country are traded to the developed country
- CDM activity contributes to sustainable deelopment in the developing country
          *enables the developed country to meet emission targets
- emission reductions should be "additional"
          *additionality ensures that emissions are reduced beyond business as usual

• Joint Implementation (JI) projects similar to CDM but between annex 1 partners (i.e. most developed countries)
• Key issue:
 – Carbon is global – any reduction orsequestration has a global effect

Global Market Size

 Australia: pre-November 2007

• NSW Greenhouse Gas Abatement Scheme
 – NGACs (compliance market)

• Australian Greenhouse Office
 – Greenhouse Friendly (voluntary trade)

• Both in broad alignment with Kyoto rules

 Australia: December 2007

• Prime Minister Kevin Rudd ratified Kyoto in Bali

• Target of 108% of 1990 level emissions

• Emissions trading system by 2010

• Model yet to be defined
 – unclear field of play
 – likely to be cap and trade
 – Australian National Emissions Trading Scheme

Agriculture

• Excluded from Phase 1 – National Emissions Trading Scheme (NETS)
• Largest emitter of methane and nitrous oxide
• Contribute to carbon dioxide emissions
• To develop emission reduction strategy need to identify emission sources

Agriculture Emissions 2005

 Major Agricultural Emissions

• Enteric fermentation in livestock
• Manure management
• Rice cultivation
• Agricultural soils
• Prescribed burning of savannas
• Field burning of agricultural residues

Agriculture

• Reduce in fuel usage, reduce fertiliser application (improved efficiency = abatement)

• Avoid emissions modify processes to reduce methane e.g. aerobic composting

• Changed land use – e.g. soil carbon or vegetation storage

• Issues
 – New approach, untested under Kyoto; son-of-Kyoto post-2012?
 – Permanence: for vegetation, 100 year rule…?
 – Ownership…?
 – Compliance costs/verification…?

Land Use Change Calculator

Conclusion

• Emissions trading is coming
• There is a $ value in reducing emissions
• Bottom line advantages – reduced operating costs through efficiencies
• Top line advantages – improved consumeracceptance and market access
• Can your business model capture value?

 Balance Carbon for You

• Greenhouse gas emission audits
• Policy advisory & strategy development
• Carbon credit sales
• Carbon credit origination/project advisory

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