What opportunities does a net zero carbon target offer horticulture?

This article originally appeared in the Summer 2021 edition of AFG, available online here.

There’s money to be made in soil carbon farming. But experts have warned that with high opportunity costs and the low value of carbon credits, benefits are more likely to flow from productivity increases rather than participation in the credit trading scheme.

An occasional paper from the Australian Farm Institute A landholder’s guide to participate in soil carbon farming in Australia provides a guide as to what is possible for a sustained increase in soil carbon under various conditions, and estimates the costs and benefits for landholders.

How soil carbon farming works

Administered by the Clean Energy Regulator, the Emissions Reduction Fund (now the Climate Solutions Fund) is the main vehicle for landholders to earn income from soil carbon farming.

Participants can bid to provide carbon offsets(Australian Carbon Credit Units or ACCUs) earned through approved land management practices. One ACCU provides one tonne of CO2 equivalent of abatement.

ACCUs can be contracted to the government and counted as an offset to Australia’s overall reported emissions, or sold on the voluntary market.

The report notes that at present, disincentives to participation in soil carbon farming under the Emissions Reduction Fund include its complexity, permanence obligations of 25+ years, compliance costs, and uncertainty of outcomes.

What does soil carbon farming involve?

Broadly speaking, soil carbon farming involves three key steps:

1. Undertaking one or more new land management practices. The key word here is “new”: landholders cannot earn carbon credits by continuing the status quo, even if they have already implemented improvements that store carbon.
2. Measuring the increase in soil carbon. A sequence of ongoing soil samples must be taken to a depth of 30cm and sent to an accredited laboratory for carbon analysis. The protocols for measurement are set out on the Emissions Reduction Fund website.
3. Maintaining stored carbon for at least 25 years. This is the minimum period for sequestering, or maintaining the changes made.

A warning about aggregators

According to the report, commercial aggregators have signed up landholders in more than 130 soil carbon projects to date. The authors warn that these aggregators make exaggerated claims about earning money from carbon credits when compared with scientific literature.

Additionally, foreign companies are becoming increasingly involved in the Australian market. The report notes that due to untested and non-conforming methodologies, these companies do not provide the integrity of rigorously tested ACCUs, meaning they may not count as verified offsets. Selling offsets overseas means they will not be counted as an offset to Australian emissions.

Costs versus benefits

There are two key costs involved in participating in a soil carbon farming project registered with the Clean Energy Regulator.

1. The costs of establishing the project, including engaging the services of an aggregator, records compilation, site survey, soil sampling and analysis. Aggregators may charge between 18–44 per cent of the carbon credit income to steer a project through the Clean Energy Regulator’s requirements.
2. The costs associated with the change(s) itself, such as changing fertiliser inputs.

The benefits identified in the report are:

1. Improved productivity under the new land management and hence increased profitability of the business.
2. Income earned from the sale of carbon credits either under government contract or on the voluntary market.
3. Co-benefits such as improved ecosystem services and biodiversity. These improvements benefit the whole of society rather than an individual landholder.

Speaking about the opportunity cost in a podcast with the Australian Farm Institute, University of Melbourne soil scientist and report co-author Professor Brian Davidson noted: “There are benefits of putting more carbon in the soil – we don’t dispute that fact. But if you have to undertake a change, then economists measure that change in terms of the opportunity costs. And what we’ve found is the opportunity cost of actually changing the practices can lead you to fairly significant losses per hectare.”

The report’s verdict

According to the report’s authors, “the financial outcome from carbon credits alone is dubious, given the low value of ACCUs, project compliance costs and overall the opportunity cost associated with making a land management change.”

Agriculture Victoria makes a similar point in an online explainer Selling carbon from trees and soil: “Many researchers believe that the benefits of building carbon in soils and vegetation, including increased water holding capacity and ability to store and exchange nutrients, far outweigh what can be achieved from selling it.”

This is a key point to keep in mind if your business is approached by a carbon aggregator making exaggerated claims that are not necessarily achievable.

Co-benefits, such as improved ecosystems and associated productivity increases, could be of greater benefit to growers than selling carbon credits. In other words, soil carbon improvements are best used for the tree rather than sold through a trading scheme. Savvy marketers may also be able to tap into consumer concern about carbon emissions by turning low-emissions operations into a selling point.

Fiona Davis, CEO of Farmers for Climate Action (FCA), advises that generating income through carbon credits is just one of the opportunities that building soil carbon may offer growers.

FCA released its own report How can Australia’s agriculture sector realise opportunity in a low emissions future? in September, prepared by consultants Ernst & Young.

“Increasing soil carbon also boosts soil health and function and, with it, farm productivity and resilience,” Fiona said.

“On this basis alone, it is worth pursuing. Improving farm productivity and resilience is increasingly important as growers grapple with the impacts of climate change, including changing growing seasons, and more frequent and severe weather events – including more hot days and hail– on their crops.”

There’s more to carbon than soil

While the focus of the AFI report was on soil carbon, there are other sources of greenhouse gases in horticulture. According to Agriculture Victoria, the horticulture industry only produces one per cent of total agricultural emissions in Australia. Of this, the main source of direct emissions are fertilisers, while indirect sources include energy use and transport when the end-to-end supply chain is taken into account. Every source of emissions provides an opportunity to reduce an orchard’s carbon footprint.

“Steps to reduce emissions must be tailored to the individual farm,” Fiona says. “Great options for growers to consider include installing renewable[capacity] across plant and irrigation facilities and revegetating less productive parts of their properties.”

Fiona recommends that growers check out Agriculture Victoria’s Making Cent$ of Carbon On-Farm booklet.

“This provides a great overview of opportunities to reduce emissions across Australian farm businesses and an excellent starting point for making a plan for your orchard,” she said.