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The economics of Australian agriculture’s participation in carbon offset markets

The economics of Australian agriculture’s participation in carbon offset markets. Helal Ahammad Chief Analyst ABARES. Agricultural emissions, 2008. Source: DCCEE (2010). other 16%. Cropping 12%. livestock 72%. Challenges and opportunities for carbon offsets The supply side.

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The economics of Australian agriculture’s participation in carbon offset markets

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  1. The economics of Australian agriculture’s participation in carbon offset markets Helal Ahammad Chief Analyst ABARES

  2. Agricultural emissions, 2008 Source: DCCEE (2010) other 16% Cropping 12% livestock 72%

  3. Challenges and opportunities for carbon offsets The supply side

  4. The ‘additionality’ challenge • to generate offset credits under the CFI, abatement and sequestration must be additional to the BAU levels • some emissions reducing practices are likely to lead to productivity gains • additionality test should be broad-based business-as-usual (BAU) emissions emissions with offset projects

  5. 6. Draw up contracts 1. Search for information The ‘transaction costs’ challenge 7. Settle contract 2. Develop or adopt a methodology 8. Monitor, report and verify offset project 3. Developproject proposal 9. Apply for credits from Regulator 4. Locate buyer or seller 10. Transfer credits 5. Apply for approval

  6. Opportunities for ‘aggregators’ • the majority of Australian farms emit less than 1 000 tonnes of CO2-e a year • high transaction and administration costs

  7. Opportunities for institutional innovations • institutional innovations key to the success of the CFI • contract design with two-part payments • an upfront payment • ongoing payments on the delivery of offset credits

  8. Challenges and opportunities for carbon offsets The demand side

  9. Demand for carbon offsets

  10. Domestic demand for carbon offsets • demand for carbon offsets in ‘voluntary’ market is small • ‘voluntary’ purchasers of offsets are primarily driven by corporate social responsibility • to create demand for agricultural offsets from the CFI a domestic carbon price is needed

  11. Schemes around the globe MGRA: Midwestern greenhouse gas reduction accord WCI: Western Climate initiative AB 23: Californian Assembly Bill 32 (Global Warming Solutions Act) CDM: Clean Development Mechanism JI: Joint Implementation REDD: Reducing Emissions fr Deforest. & Degrad.

  12. Surplus of Kyoto units in the EU and Australia, 2009

  13. Demand for carbon offsets

  14. Demand for carbon offsets LIMITED

  15. Demand for carbon offsets LIMITED LIMITED

  16. Demand for carbon offsets LIMITED LIMITED NOT PROMISING

  17. Demand for carbon offsets LIMITED LIMITED NOT PROMISING HIGH POTENTIAL

  18. Summary • there are challenges as well as opportunities • aggregators and institutional innovations can play a key role to overcome some key challenges • limited demand for CFI credits from international markets • domestic carbon pricing policy with offsets provisions will play a key role

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