There has been a lot of press activity over the last few months with announcements from Minister Angus Tayler. Soil carbon is at the top of the political agenda and is even being talked up by the Prime Minister.
Carbon Link is open for business, doing “discoveries” and building a pipeline of projects to begin commercial baselining in 2021. The discovery process is in two parts. The first provides a go/no go decision point for proceeding with a soil carbon project. This phase will conduct preliminary mapping, determine potential project areas and provide estimates of potential costs and returns from doing a soil carbon project. At the same time, it outlines information on the obligations and restrictions in the future.
If the soil carbon project is viable, and the property owner decides to continue, we move to phase two. This includes registration, detailed mapping and project planning, along with discussion on contracts and the farm management plan.
Once a project is registered, we can proceed to baselining. As a rule of thumb, it will take four to six months to progress from initial discussions to the point of baselining. The analyses we have done indicate potentially good carbon project returns when the price of carbon is $20 to $25 per tonne of CO2e. The biggest driver of profitability in a carbon project is the sequestration rate. It starts paying well from one tonne of organic carbon per hectare per year. However, for a highly profitable 25-year soil carbon project, two tonnes of carbon per hectare per year or more is desirable.
The table below illustrates several points:
Firstly, sequestration rate is the biggest driver of profitability at the farm scale. This means that management strategies to increase it are very important.
Secondly, scale is also a significant driver of profitability. For a given sequestration rate, profitability increases by more than the increased area alone.
Thirdly, price has been kept constant in this model, but it will have a noticeable impact on profitability. Australia currently has the second-lowest carbon price in the world and is only 50% of the NZ price and 30% of the European and Korean price.
Finally, these are estimates based on the best current information. As the methodology improves, as the technology drives costs down, and as the accuracy improves, projects are likely to become quite profitable.
There will be some positive outcomes in the recent announcements for agriculture and soil carbon trading in particular, but these are unlikely to emerge fully for another two years. The government commissioned a review into why the market in Australia is not taking up methodologies. Titled the King review, it came out with an extensive list of recommendations. And almost all of these have been adopted by the government.
Some of the recent announcements and movements by government, which are likely to be of benefit to producers, include:
- Indications of fixing some of the issues in the current soil carbon methodology.
- Opening up methodology development to industry.
- Reducing the time to construct new methodologies from four years to one year.
- Providing an upfront payment of $5000 to support baselining costs.
- Promising to reduce the bureaucracy in the registration process.
- Providing funding to bring the baseline costs down to $3 per hectare per annum.
We hope to develop a new methodology in conjunction with either the government or an international Registry, which will be both measured and modelled. The advantage of this is that it will reduce the amount of measuring and provide annual cash flow, instead of lumpy cash flow.
Carbon Link was involved in these discussions and was in a position to influence some of the policy direction taken. We are now positioned, with 7.5 full-time-equivalent, highly skilled staff, to continue developing new technologies, which have both reduced costs and increased accuracy. The technology, initially licenced from CSIRO, is world-leading and we expect further reductions in costs and increases in accuracy as the prototypes convert to commercially valuable equipment.
There is interest amongst big emitters in funding baselines and practice change for a guaranteed supply of credits. This may result in new models of funding for soil carbon projects.
- In the current Australian industry, soil carbon projects can be very profitable when the sequestration rate is 2t C/ha/annum, or higher.
- Carbon Link is open for business, especially in terms of getting the discoveries and registration processes underway, for baselining in 2021.
- Although we will be operational in 2021, we expect that within two years we will have;
- An improved methodology (with less BS in it!!)
- Improved technology (well advanced)
- Annual cash flow (requires new methodology)
- Support for funding projects (interest already there but we need a big pipeline)
- Lower costs (we are already below conventional analysis costs)
If you want to express your interest in a soil carbon project, click on the link http://carbonlink.com.au/carbon-market/register-your-interest/ and then download the form.
Carbon Link contacts
Dr Terry McCosker
Director of Carbon Link