Carbon Shortcuts: Episode 2
In episode ✌️ of Carbon Shortcuts: An introduction to all things Carbon in Aussie Agriculture, hosts Oli Le Lievre and Sam Noon are joined by Professor Richard Eckard from the University of Melbourne. The discussion revolves around the different types of carbon markets, the distinction between offsetting and insetting, and the emergence of biodiversity credits.
Understanding the Carbon Market:
The Difference Between Voluntary and Compliance Markets: Richard Eckard explains that the voluntary market includes international platforms such as the voluntary carbon standard or Verra. These markets have simpler calculations and lower integrity requirements. On the other hand, compliance markets, like the Australian carbon credit market, are government-run and have stricter compliance and integrity principles. Compliance markets use unique identifiers for carbon credits, ensuring transparency and tracking,
“the big difference is a compliance market has a unique identifier on every carbon credit, and the government is responsible for tracking them in a registry. So we know at any one time where any Australian carbon credit unit is anywhere in the economy”
Participants and Trades in Each Market: Compliance markets, such as the New Zealand ETS and the Australian Emissions Reduction Fund, are favored by entities that can comply with specific methodologies. The forestry sector is actively participating in compliance markets, given their long-standing knowledge and experience with carbon sequestration. In contrast, voluntary markets attract more international players looking for affordable carbon offsets to claim carbon neutrality.
“The flaw comes in where if you are not honest in how you sold soil carbon, you can sell the sale, same soil carbon on three separate markets without them knowing about each other. That's the difference.”
The Revenue Potential and Investment Required:
Revenue Potential: For individual farmers, the rough rule of thumb on return on revenue for a single carbon project makes it less attractive for them to be involved in projects. However, larger corporate agricultural enterprises can generate substantial revenue due to the volume of their operations.
“we came up with this rough rule of thumb that a single carbon offset project on a single family farm would generate less than 1% of the farms turnover. So you take a $2 million dairy business, a single offset method would generate them $2,000.”
“that's why they're not engaged just because the revenue stream is just not enough.”
Investment and Return: Investment in carbon offset projects may not be economically viable for individual farmers, given the low revenue potential. The costs of maintaining carbon management offices and the paperwork involved can outweigh the benefits for smaller operations. This scenario favours larger corporations that can afford dedicated carbon management resources.
“by 2030, that [insetting carbon] is going to be the main game in town, a shift out of this notion of diversified income from carbon. Realising that if we didn't keep it for ourselves, we might lose the main game which is selling our product” - Richard
Shifting Focus from Carbon to Biodiversity:
Insetting and the Importance of Retaining Carbon: Insetting refers to the practice of keeping carbon within the farm and using it to improve productivity. Eckard highlights that high soil carbon can bring significant profitability to a farm, making it more valuable than selling carbon credits. This approach reduces paperwork, long-term commitments, and reliance on aggregators.
“we find that the inherent productivity value of high soil carbon is one or two orders of magnitude more profitable back to the farm, than selling a carbon credit out of that soil”
Emphasising Biodiversity Credits: The conversation explores the future shift from carbon credits to biodiversity credits. Supply chains are setting targets, and compliance with these targets will become essential for maintaining access to markets. Eckard suggests that biodiversity credits will become the primary focus by 2030, with carbon becoming an attribute of these credits. Rewarding good land management practices that enhance biodiversity will ensure the right individuals are compensated.
“these farms are managing a massive amount of biodiversity on behalf of the public good, we should find a way to reward that.”
Series sponsor
This series is sponsored by Ruminati, an online emissions calculator created by farmers for farmers. You can learn more about their solution here, show notes or by listening to our bonus episodes after episodes 3 and 4.
Disclaimer: The information shared as part of this carbon series is general in nature. We're asking questions of Professor Richard Eckard. And he's providing his insights from his expertise. Humans of Agriculture doesn't endorse any of his views as part of this. They're really designed to just be conversation starters. And if you want to get more information, please reach out to specialists and experts in the carbon space.