rural australia providing climate solutions

Rural Australia Providing Climate Solutions Preliminary report to the Agricultural Alliance on Climate Change Steve Hatfield-Dodds,† Josie Carwardine,*

Michael Dunlop,† Paul Graham,‡ and Carissa Klein*

† CSIRO Sustainable Ecosystems * The Ecology Centre, University of Queensland ‡ CSIRO Energy Transformed

CSIRO Sustainable Ecosystems October 2007

© CSIRO, S. Hatfield-Dodds, J. Carwardine, M. Dunlop, P. Graham and C. Klein 2007

This report was commissioned by the Australian Agricultural Alliance on Climate Change, and should be cited as:

S. Hatfield-Dodds, J. Carwardine, M. Dunlop, P. Graham and C. Klein, 2007, Rural Australia Providing Climate Solutions. Preliminary report to the Australian Agricultural Alliance on Climate Change. CSIRO Sustainable Ecosystems, Canberra.

The Agricultural Alliance on Climate Change comprises of:

AgForce

Australian Conservation Foundation

The Climate Institute

Country Women’s Association of Australia

South Australian Farmers Federation

Visy

Western Australian Farmers Federation (Inc)

Westpac

The Alliance invites comments on this preliminary report, which may be made through the following website:

www.climateinstitute.org.au

The contact author for the report is:

Steve Hatfield-Dodds Senior Research Scientist, Integration Science and Public Policy Convenor, CSIRO Integration Network

phone: +61 2 6242 1510

email: [email protected]

mail: CSIRO Sustainable Ecosystems GPO Box 284 Canberra ACT 2601 Australia

web: www.csiro.au

Rural Australia Providing Climate Solutions

Preliminary report to the Agricultural Alliance on Climate Change page 1 Steve Hatfield-Dodds (CSIRO) and others, October 2007 of 54

Executive Summary

This preliminary report aims to help identify the potential, problems, and priorities for rural businesses and communities in contributing to Australian action on climate change. It has been commissioned by the Agricultural Alliance on Climate Change.

It focuses on the prospects for rural Australians becoming valued service providers in three important areas of Australia’s low carbon future:

providing clean energy and electricity;

mobilising agricultural mitigation and greenhouse gas offsets; and

supporting environmental stewardship on private land.

The paper presents the best available information on the potential supply of each of these services from rural Australia, assesses key challenges or impediments that need to be overcome in order to realise this potential, and estimates the associated benefits for Australia rural businesses and communities.

Major findings include:

(a) The introduction of emissions trading offers a range of important opportunities for agriculture (including profitable chances to supply offsets and renewable energy, increased demand for existing agricultural products, and substantial potential permit revenues for agricultural programs that provide greenhouse benefits) but also involves some potential challenges;

(b) The net impacts of emissions trading on competitiveness will depend on the details of policy implementation and accompanying measures. The Allen Consulting Group (2006) found that emissions trading would boost domestic agricultural demand at low levels of carbon prices. The Australian Farm Institute (2007), however, argues that under higher carbon prices emissions trading will increase the cost of energy and other key inputs, reducing export competitiveness. Our analysis suggests that these cost increases are likely to be small (less than 3% by 2025), and could easily be offset by other policy benefits. Assessing the magnitude of net competitiveness impacts and engaging policy makers on this issue is a priority;

(c) Achieving a clean, renewable electricity target, such as a renewable energy target of 25% by 2020 appears challenging but feasible, and could provide significant benefits to rural Australia. A substantial increase in clean electricity generation would be possible and cost effective with the introduction of a strong clean, renewable energy target or an ambitious medium-term emissions reduction target, and it is likely that a range of clean energy technologies will be able to meet projected demand for peak and base load power to 2050 and beyond;

(d) Renewable energy offers significant financial and other benefits to landholders and rural communities. Previous reports imply wind and bio-electricity could generate total annual revenues of $300-1000 million by 2020 with an ambitious emissions reduction target or other policy support for renewable energy. Estimates undertaken for this report suggest potential wind royalties of up to $150 million a year, or more.

(e) Biofuel supply is expected to exceed the Government’s target of 350 ML by 2010, and significant further expansion of domestic biofuel production in the medium term would be possible with step changes in production technologies or specific policy action in addition to the introduction of emissions trading. Realising the benefits of increased production and use of biofuels will require all stakeholders to be involved in developing practical pathways for commercialising biofuels that are environmentally sustainable and do not disrupt food and fibre production, along with significantly increased research and development into prospective second generation biofuels that are relevant to Australia;



(f) There is a strong case for government support for programs that demonstrate and deliver mitigation in advance of the inclusion of direct agricultural emissions in an emissions trading scheme. However, farmers should not assume that emission trading will allow the creation of tradable credits through reductions in agricultural emissions relative to past levels.

(g) The potential for creating offsets through vegetation sinks is very large, but realising these benefits will require clarification of policy settings and improvements to accreditation arrangements. Establishing new plantation forest at around double the average annual rate for the last decade would offset 18 million t CO2e per year after 15 years (equivalent to one fifth of direct agricultural emissions in 2005), and could yield gross carbon revenues of $360 to $920 million a year, or more.

(h) Environmental stewardship payments have the potential to address climate related pressures on both landholders and ecosystems. Implementing an ambitious voluntary stewardship scheme could more than double the area of actively conserved native vegetation through total outlays of $740 to $1,630 million per year, some of which might be funded through the carbon value of the native vegetation protected.

Table ES.1 summarises the most important potential opportunities and challenges identified for rural business and communities. The opportunities quantified in the table have been selected on the basis of two key tests. First, does the issue represent a chance for rural business and communities to make a positive contribution to reducing emissions or addressing the impacts of climate change? Second, does the issue provide a new enterprise opportunity or source of income for rural people or businesses?

The right hand column of the table highlights the main factors that will influence whether a challenge becomes a reality, or the scale of the benefit derived from an opportunity.

The major findings and specific opportunities and challenges summarised in Table ES1 give rise to the four key messages from the discussion paper.

(1) Rural businesses and communities appear best served by more ambitious medium term emissions reduction targets

The interests of rural businesses and landholders are likely to be best served by scenarios with more ambitious mid-term emissions reduction targets, along with higher carbon prices and policies that support renewable energy deployment in the near-term.

Rapid and effective global action to reduce emissions is important to reduce the direct risks and impacts of unmitigated climate change, such as lower rainfall, higher temperatures and evaporation, increased drought and fire risk, and more severe extreme events.

At a national level, estimates of the potential revenues associated with different opportunities suggest that carbon prices around $50/t CO2e could generate around 10 times more revenue for rural businesses and communities than prices around $25/t CO2e, as shown in Figure ES1 and Table ES1.

Figure ES1 Net new income or profit for rural communities at different carbon prices, 2020-2025 (A$ million)

Source: Table ES1.

0

200

400

600

800

1000

1200

1400

$20/t CO2e $50/t CO2e $65/t CO2e

Vegetation offsets - net profits

Wind power royalties

Government support forreducing direct emisisonsIncreased profitability (ACG)



The analysis presented in the report suggests that carbon prices of $15 to $30/t CO2e are unlikely to open up widespread new opportunities for rural business and communities, while carbon prices of $50 to $75/t CO2e could unlock significant financial revenues, help diversify rural income streams, and promote rural employment. Against this, higher carbon prices may create competitiveness issues by raising input costs unless addressed or offset by other policies, including support for renewable energy or stewardship payments. Higher carbon prices may also increase the risk of more intrusive policy mechanisms to promote mitigation if a voluntary approach does not deliver effective abatement.

(2) Careful policy design is needed to ensure emissions trading enhances agricultural competitiveness

Emissions trading is expected to increase energy prices and may raise total farm input costs by up to 3% by 2025, notwithstanding that direct agricultural emissions are initially excluded from the scheme. Increased costs of this magnitude could be easily offset by benefits from other policy actions, such as increased support for adaptation to climate variability, the co-benefits of abatement policies (such as meat production gains associated with reductions in methane emissions from livestock), or reductions in business taxes funded by the proceeds of emissions permit auctions. Assessing the magnitude of net competitiveness impacts and engaging policy makers on this issue is a priority.

Over the longer term, close involvement of agricultural producers and peak groups in the development of emissions reductions options will be important for enhancing the competitiveness of Australian agriculture and positioning the sector to influence the development of policy, including the possible extension of emissions trading to include direct agricultural emissions.

(3) Clear policy signals are required to mobilise investment and activity, and deliver benefits for Australia

Good decision making and risk management in rural Australia requires clear policy signals from government, through progressively more detailed policy announcements and guidance. Rural businesses and communities have much to offer Australia as emissions trading and other policies to address climate change are introduced. Most of these contributions involve investment and sustained action, and so will only be fully mobilised as policy settings are clarified.

(4) A collaborative approach to detailed policy development will yield the best results for Australia, and Australia’s rural businesses and communities

A collaborative and consultative approach to detailed policy development will yield the best outcomes for Australia, and for Australia’s rural businesses and communities. The deployment of renewable energy, development of effective policies to support abatement of agricultural emissions, implementation of vegetation offsets and accreditation arrangements, and realising the potential of stewardship payments all involve a host of judgements that can only be robust if they are informed by practical on ground knowledge. Rushing to implement partial or prescriptive policies can create long term problems. In the words of the Prime Ministerial Task Group on Emissions Trading:

“The agricultural sector should be engaged to develop realistic options.”



Table ES1. Summary of opportunities and challenges for rural business and communities from emissions trading and related policies in 2020-2025

Issue Scale of Impacts Contingent on

$20 /t CO2e

$50-65 /t CO2e

Potential increased agricultural profitability or reduced competitiveness from emissions trading (a)

challenge or opportunity

challenge difficult to quantify, engagement

likely to deliver net benefits of $25 million

pa or more

potential cost increases from emissions trading could be offset or outweighed by other policy actions

Liability for direct agricultural emissions (in advance of competitors in export markets)

potential challenge

could be very large

how and when agricultural emissions are included in emissions trading

Wind power

- gross revenues (b) $255 m >$822 m

- net income or profit (c)

opportunity

small $44-263 m

ambitious emissions reduction target or other support for renewable energy

Bio-electricity - gross revenues (b)

$47 m >$354 m

Who bears the burden of reducing direct agricultural emissions, and the size of this burden (a)

challenge or opportunity

more than $70 m

whether policy empowers and supports voluntary action, vs prescriptive regulation or penalties

Vegetation offsets

- gross revenues $367 m $918+ m

- net income or profit

opportunity

small $550+ m

level of the carbon price and details of policy development

Sub-total: Net new income or profit for rural communities (d)

$95

million pa $815-1,310 million pa

Stewardship payments (gross revenues) (e)

opportunity $740-1,630 million pa significant expansion of stewardship scheme

Total potential revenues including stewardship payments (d)(e)

$835-2,940

million per annum

Notes and Sources: Qualitative assessments of impacts based on discussion in the text of the report. All dollar estimates refer to the scale of impacts per year around the period 2020 to 2025, and are based on new estimates undertaken for this report as presented in text and tables, except for (a) from The Allen Consulting Group 2006b, and (b) calculations based on bio-electricity and wind generation projections from REGA 2007 and unit revenues from Saddler et al 2004. (c) Based on wind royalties. Estimate for $50/t CO2e is $44 million, consistent with the scenarios in REGA 2007, rather than full potential royalties of $147 million shown in Table 2. (d) Totals assume competitiveness issues are addressed and that government bears the economic burden of reducing direct agricultural emissions, and treats these program outlays as new income. (e) Value of stewardship payments are not assumed to be directly related to carbon prices.



Contents

Executive Summary 1 1. Climate opportunities and challenges for rural Australia 6

1.1 Overview of the impacts of emissions trading 6 1.2 Current policy outlook 7 1.3 Carbon price outlook 8

2. Positioning rural Australia as a clean energy supplier 9 2.1 Prospective sources of low or zero emissions electricity 9 2.2 Prospects for biofuels 16 2.3 Factors influencing the potential supply of clean energy 17

3. Mobilising agricultural mitigation and emissions offsets 20 3.1 Measuring farm level agricultural emissions 20 3.2 Competitiveness issues 22 3.3 Policy options for achieving abatement of agricultural emissions 24 3.4 Recognition of land clearing in emissions trading 25 3.5 Potential supply of carbon offsets 26

4. Supporting environmental stewardship on private land 29 4.1 The case for environmental stewardship 29 4.2 Potential supply of stewardship services 30 4.3 Effective national implementation of environmental stewardship 34

5. Conclusions – implications and priorities for action 36

Appendix A: Estimating potential supply of wind and bio-electricity 40 Appendix B Abatement policies for agriculture 45 Appendix C: Estimating potential supply of vegetation based offsets 46 Appendix D: Estimating potential supply of voluntary stewardship

services and payments 47 References and Endnotes 49



1. Climate opportunities and challenges for rural Australia

Climate variability is a fact of life in rural Australia. Australia is the driest inhabited continent, with rainfall and surface flows that are up to 15 times more variable than other continents.1 Our experience in coping with climate variability will be an important asset in managing the impacts and opportunities presented by climate change, which is projected to impact through changes in rainfall, higher temperatures, higher evaporation, changes in frost periods, more frequent and severe storms, and changes to associated ecosystem services (such as pest predation by native birds).2 Climate projections indicate a drying trend along with increased variability in rainfall across most of the continent, resulting in increased drought and fire risk and exacerbating the trend of declining rainfall and water availability experienced by many agricultural regions over recent decades.3

For these reasons, key agricultural leaders have publicly recognised that “climate change may be the greatest threat confronting Australian farmers and their productive capacity now and in the future”,4 implying that our rural businesses and communities have a strong interest in effective and rapid global action to reduce emissions, as well as in policies supporting effective adaptation.

Similar concerns prompted the Agricultural Alliance on Climate Change to commission this discussion paper to help identify and assess the potential, problems, and priorities for rural businesses and communities in contributing to Australian action on climate change. The paper focuses on the prospects for rural Australians becoming valued service providers in three important areas of Australia’s low carbon future:

providing clean energy and electricity (Section 2);

mobilising agricultural mitigation and greenhouse gas offsets (Section 3); and

supporting environmental stewardship on private land (Section 4).

The paper presents the best available information on the potential supply of each of these services from rural Australia (including estimates undertaken specifically for this report), and assesses key problems or impediments that need to be overcome in order to realise this potential, and estimates the associated benefits for Australia and our rural businesses and communities. The paper concludes (in Section 5) with a summary of the key implications of this analysis for rural businesses and communities.

1.1 Overview of the impacts of emissions trading

As well as being vulnerable to the impacts of climate change, Australia is highly exposed to the potential impacts of international policy action to reduce emissions. We are among the world’s highest per capita greenhouse gas (GHG) emitters, and more than two thirds of Australia’s exports are from agriculture, minerals and energy, and metals. Agriculture itself accounts for 16% of Australia’s emissions, but adding end-use emissions such as from electricity and fuel consumed by the sector, the figure rises to 23% of total annual emissions. These sectors together account for around half of our national emissions (23%, 11% and 13% respectively), and are particularly vulnerable to the climate policy choices of other nations.5 It is thus in Australia’s interest, as a nation, to find effective global mechanisms for avoiding dangerous levels of climate change.

Analysis of the impacts of emissions reductions suggest that deep cuts in emissions are compatible with strong continuing economic growth,6 that Australian economic impacts will be strongly influenced by the extent of global participation and whether policy settings are successful in minimising trade distortions,7 and that delaying substantive reductions in emissions risks larger adverse economic impacts.8 The Australian Business Roundtable on Climate Change argued in April 2006 that the impacts of substantially reducing emissions were “modest” and “affordable”,9 and in May 2007 The Prime Ministerial Task Group on Emissions Trading found that “there



are benefits … in early adoption of an appropriate emission constraint”, and that “Australia should not wait until a genuinely global agreement has been negotiated.”10

While a number of previous studies have explored the direct impacts of climate change on agriculture, systematic assessments of the sectoral impacts of mitigation policy on Australian agriculture and rural communities are rare. A 2006 report by The Allen Consulting Group for the National Farmers Federation suggested that the introduction of emissions trading in the energy sector could increase agricultural value added by $25 million to $100 million per year over the first decade of trading relative to the ‘business as usual outlook (a 0.1% to 0.4% increase), not including any benefits derived from tree-based offsets or renewable energy.11 This analysis was undertaken before the announcement of the Prime Ministerial Task Group on Emissions Trading, however, and assumed a relatively low carbon price. This is important because at higher carbon prices there is a risk of impacts on our export competitiveness, if policy settings do not address this issue and our major competitors are not also taking action to reduce emissions. These competitiveness impacts are emphasised by the recent report of the Australian Farm Institute.12 This discussion paper draws on these findings, and a range of other new and existing work, to develop a broader picture of key challenges and opportunities for agriculture and rural communities.

1.2 Current policy outlook

In July 2007 the Federal Government announced the introduction of emissions trading from no later than 2012.13 Some important details of the scheme, including the long term emissions target are to be announced in 2008. From an agricultural perspective the key features are as follows:

permit liability will cover direct emissions from large facilities and upstream fuel suppliers, accounting for around 55% of total emissions;14

emissions from agriculture and land use are initially excluded from the scheme (so that agricultural producers will not be liable for these emissions), but “sectors initially excluded from the system, including agriculture, will be included as practical issues are resolved” and in the meantime will be “subject to other policies designed to deliver abatement”;15

potential competitive disadvantages for trade exposed emissions intensive industries will be ameliorated through free allocation of permits while key international competitors do not face similar emissions constraints;

it is intended that the scheme will recognise “a wide range of credible carbon offsets” from agriculture and forestry within Australia and overseas,16 and link to other comparable national and regional schemes over time.

These policy features are similar to those articulated in the policy position of the Federal Opposition17 and the State and Territory Governments’ discussion paper on the design of emissions trading,18 providing a stable policy context for exploring the climate policy issues for rural businesses and communities.

A key indirect effect of the introduction of emission trading will shift investment in new electricity generation in favour of gas (with low carbon prices) or renewable energy and other low emission sources of electricity (with higher carbon prices or separately mandated clean energy targets).

Australian participation in international emissions trading, such as through ratification of the Kyoto Protocol or its successor or the development of other arrangements, would provide a range of opportunities for the sector to purchase or supply emissions credits. International emissions trading would provide additional markets for offsets from the Australian agricultural sector, and additional competition for credits in the national emissions trading scheme. If ratified by Australia, farmers could also



undertake Joint Implementation projects under the Kyoto Protocol and provide offsets to other developed country parties to the Protocol.

1.3 Carbon price outlook

The impact of emissions trading on agriculture and rural communities will be influenced both by detailed policy design issues, such as the inclusion of a clean or renewable energy target (Section 2) and the accreditation requirements for carbon sinks (Section 3), and by broader policy choices about the mid term emissions trajectory and the resulting carbon price.

Figure 1 presents a range of estimates of the Australian carbon price associated with steady action to achieve significant reductions in emissions from 1990 or 2000 emission levels, along with a mid range estimate of international carbon prices associated with feasible global action to avoid dangerous levels of climate change.19 20 While these different estimates reflect different levels of annual and cumulative emissions, they suggest a likely price range of $15 to $65 in 2020 and $20 to $75 in 2025, and an effective mid term ‘price floor’ of $15 to $20 even with a very modest long term emissions target or offset sales targeting only overseas markets.

For simplicity, ‘low’ or ‘modest’ carbon prices and targets refer in this report to policies that result in prices in the range $15-25/t CO2e while ‘high’ or ‘ambitious’ prices and targets refer to policies that result in prices in the range $50-75/t CO2e in the period 2020-2025.

Figure 1 Estimates of potential carbon prices, 2010-2035 (A$2005 t CO2-e)

0

25

50

75

100

125

2010 2015 2020 2025 2030 2035

International price (median value)

Narrow ET (electricity only)

Narrow ET (electricity only) with energy efficiency

Broad ET (all sectors and sources), early action

Broad ET (all sectors and sources), gradual action

Notes and Source: Estimates for international carbon price from IPPC Working Group III 2007 Assessment Report; carbon prices for narrow emissions trading scheme from The Climate Institute 2007 Making the Switch ‘steady action’ and ‘steady action plus energy efficiency’ scenarios; carbon prices for broad based emissions trading from the Australian Business Roundtable on Climate Change 2006 ‘early action’ scenario and the average of the ‘early action’ and ‘delayed action’ scenarios (here labelled ‘gradual action’).



2. Positioning rural Australia as a clean energy supplier

The introduction of emissions trading will fundamentally change the economics of electricity generation in Australia as energy supply decisions and investments shift to take account of the emissions intensity of different energy sources. Modest policy action would be most likely to shift new investment from conventional coal to gas fired electricity, and offer few opportunities for rural Australia.

More ambitious policies would trigger a more substantial shift towards low or zero emissions energy sources, and present a range of opportunities and challenges for rural industries and communities. In some cases these energy sources may compete for important inputs to existing activities, particularly agricultural land and scarce ground and surface water resources, and so have knock on effects for other activities and industries. In other cases these energy sources may be complementary, and involve little competition for existing resources. Changes of both kinds may be perceived by some groups as threatening local social or environmental values. Yet some sources of clean energy, if commercially and technically feasible, could provide significant benefits through new sources of income and employment and a more diverse rural economic base.

2.1 Prospective sources of low or zero emissions electricity

There are many potential sources of clean and renewable energy, and each is subject to potential impediments including financial costs, unproven technologies, non-greenhouse environmental impacts, intermittency, social acceptance, and competition for scarce agricultural land and water. Clean energy is used in this report to refer to electricity and energy sources that involve no, or almost no, operational greenhouse gas emissions. Renewable energy includes biomass sources as well as wind, wave, hydro and solar power. Biomass (including bio-electricity and biofuels for transport) may involve some net greenhouse emissions, zero emissions, or net carbon uptake (or ‘negative emissions’) over the life cycle.

Recent studies into the impact of clean energy targets and deep cuts in emissions from electricity indicate that with appropriate policy settings most or all of the increase in Australian electricity demand can be met through clean and renewable energy sources (see Figure 5 below), and that clean energy sources could provide at least 20% of electricity generation capacity by 2020 or 2025.21 22 23 Table 1 summarises the potential of specific clean energy technologies to contribute to electricity generation over the next two decades, along with information on their cost competitiveness to provide base-load (grid-connected) power, and other issues relevant to implementation and uptake. The first key insight from the table is that most technologies tend to fall into two distinct groups: technologies with the potential to supply a very large portion of future energy demand, and technologies which have relatively limited potential. The second insight, explored in more detail below, is that most of the technologies in the table are likely to be at least close to being financially viable by 2020-25 with the introduction of emissions trading or specific clean energy policies. (The impact of different policy options on technology deployment is discussed in Section 2.3)

The supply costs of different technologies are influenced by a wide range of factors, including the physical and financial capital required and site-specific factors such as access to the electricity distribution network, the quality of the underlying energy resource (such as wind, biomass, or solar energy), and distance to major electricity users. Total costs will fall over time due to new research and development, increased economies of scale (reducing production costs of capital equipment, for example), and learning by doing as the technologies are applied around the world and in Australia.24 Figure 2 illustrates projected supply costs for six renewable technologies over the period to 2050: small hydro, wind, solar photovoltaics (PV), large-scale concentrated solar, bio-electricity and bagasse (electricity generation from sugar cane waste). The



estimates in Figure 2 are considered conservative, with minimum costs around $10/MWhr higher than estimates from other sources.25

Table 1. Overview of prospective low emissions electricity technologies and uptake issues

Financial competitiveness at Technology Additional potential for

electricity generation

~$25/tCO2e ~$50-75/tCO2e

Non-financial advantages or

impediments to uptake

Landfill gas

very small (< 1%)

favourable in some sites

very favourable few unexploited sites environmental co-

benefits

Geothermal / hot fractured rocks

large or very large

marginal or reasonable in some sites

favourable in some sites

may involve long transmission

distances

New coal with carbon capture and storage

very large marginal before 2025

reasonable after 2025

unproven technology not suitable for all

sites some emissions

leakage

Wind large or very large

unfavourable to favourable

across different sites

favourable to very favourable across different

sites

intermittency social and

environmental concerns

Solar hot water (displaces electricity generation)

small to moderate (< 10%)

favourable very favourable must be located on residences or

buildings non-price factors impede adoption

Bio-electricity and bagasse

moderate to large

bagasse:

small

reasonable to favourable in niche applications

bagasse: favourable

potential competition for agricultural land

and water may involve loss of

soil nutrients

Tidal information not available

uncertain uncertain uncertainty of environmental impact

Small scale hydroelectric

very small (< 1%), with few

unexploited sites

reasonable for unexploited sites

favourable for unexploited sites

social and environmental

concerns exposed to rainfall

variability

Concentrated solar

very large may not be competitive until after 2025

technology requires demonstration

Solar photovoltaics (PV)

very large reasonable for retail use not competitive for baseload

wholesale supply without support, but well suited to peak supply

intermittency issues well suited to remote

applications

Source: Data gathered for the Energy Futures Forum.26



Figure 2 Indicative projected supply costs for selected renewable energy technologies

(a) geothermal (b) large scale solar thermal

0

50

100

150

200

250

300

2005 2020 2035 2050

$/M

Wh

(c) wind (d) bio-electricity and bagasse

0

50

100

150

200

250

300

2005 2020 2035 2050

$/M

Wh

(e) small hydro (f) photovoltaic (PV)

0

50

100

150

200

250

300

2005 2020 2035 2050

$/M

Wh

Source: CSIRO data and estimates, see also MMA 2006.

0

50

100

150

200

250

300

2005 2020 2035 2050

$/M

Wh

0

50

100

150

200

250

300

2005 2020 2035 2050

$/M

Wh

0

50

100

150

200

250

300

2005 2020 2035 2050

$/M

Wh

bagasse

bio-electricity



Figure 3 shows how important emissions trading is to the competitiveness of renewable energy, with a moderate carbon price (of A$30/t CO2e) shifting costs decisively in favour of renewables and gas fired generation, and away from coal fired generation. (This effect would be moderated by the use of carbon capture and storage technologies, which are expected to prevent 80-90% of potential combustion emissions, but involve higher financial costs and energy inputs.)

Figure 3 Average cost of renewable and fossil fuel based electricity generation with and without emissions trading, 2005-2050

(a) No carbon price

(b) At a carbon price of $30/t CO2e (raising the cost of fossil fuel based electricity)

Notes: NGCC = natural gas combined cycle, super critical pulverised fuel, integrated gasification combined cycle. Source: MMA 2006 Figures 3-6 and 3-8(b)



Many of these technologies are likely to be deployed primarily in rural and regional areas, as illustrated by the current accredited renewable energy sites in Figure 4.

Figure 4 Existing renewable energy sites accredited for MRET

Sugar

Solar

Hydro

Wind

Source: Provided by the Office of the Renewable Energy Generator (see www.ga.gov.au/map/orer/)

Of the established techologies, wind and biomass based energy are likely to be the most important for rural communities and private landholders. This is because solar thermal, coal with carbon capture and storage (CCS, also referred to as geosequestration), and geothermal (from hot fractured rock) all involve large scale ‘industrial’ electricity generation on relatively small sites. The financial and employment benefits of deploying these technologies are thus likely to be relatively concentrated. Wind and bio-electricity, by contrast, can be implemented as highly distributed energy resources that – if implemented at scale – could involve thousands of rural landholders (noting that these technologies can also be implemented in large nodes, such as replacing some coal with biomass in existing power stations). Some emerging technologies such as high efficiency photovoltaics with or without heliostat technologies could also prove important, but their competitiveness and contribution is difficult to judge at this point. PV or mid-scale solar concentrator based power generation in remote areas or distributed regionally could also provide benefits through reducing network distribution losses, and relatively competitive feed-in tariffs in certain jurisdictions, such as South Australia.

In general terms, studies of clean energy targets and the impact of emissions trading on the electricity sector suggest that wind and biomass are both likely to play a major role in future generation – perhaps accounting for 30% to 60% of total generation by 2050. Results of these studies are summarised in Figure 5.27 28 29 Wind appears likely to be deployed more rapidly, with estimates that it could provide two to five times as much power than biomass by 2020. Over the longer term, however, biomass is projected to outstrip wind. As shown in Figure 5, the Clean Energy Futures study (2004, using the MMA electricity sector model) suggested total shares of electricity generation of 29% for biomass and 20% for wind by 2040, while the Australian Business Roundtable on Climate Change (2006, using the Monash economy-wide model) suggested 20% for biomass and 11% for wind.



Figure 5. Projections of the clean energy share of electricity generation, 2020 – 2050

0%

20%

40%

60%

80%

2020 - REGA I 2020 - REGA II 2040 - CEF 2050 - ABRCC

coal with CCSgeothermalsolarhydrobiomasswind

Notes: REGA I = low Clean Energy Target (CET) and REGA II = medium or 20% CET, both with a carbon price of around $22 t CO2e in 2020; CEF scenario 2 for a 50% reduction in electricity emissions by 2040, biomass figure shown includes biomass used in cogeneration; ABRCC early action scenario for a 60% economy wide reduction in emissions by 2050, biomass includes biogas used for electricity. Sources: REGA 2007 Table 1 and notes 2 and 3 on page 4; Saddler et al 2004 (CEF) Table 9.3 and Figure 9.1; ABRCC 2006 Figure 6.

From a landholder perspective, wind turbines have only a small impact on farming operations once construction is complete. The most significant impacts are a small reduction in land area available for grazing and cropping associated with all weather access tracks (typically less than 1% of the farm), transmission lines that allow grid connections, and restrictions on agro-forestry or locations where new buildings may be sited (either of which may create turbulence that reduces turbine output).30 Grazing and cropping are not significantly affected in the space under the turbines, although the location of turbines may interfere with pivot irrigation arrangements. Hosting wind turbines thus offers a financial gain to landholders with few offsetting costs or disadvantages. Wind farm developers also typically pay the full cost of fencing and all weather road construction and maintenance, and may make contributions to the wider community voluntarily or through compulsory payments (such as required by the NSW EPA Act 1979, Section 94). Wind farms have faced opposition from some local communities because they are perceived to be visually unattractive, and – in some instances – because of noise or related nuisance. These wider community issues should be taken into account along with the direct benefits to landholders and wider greenhouse advantages of renewable energy when considering the implementation of wind power, and are covered under various planning and approvals processes across different jurisdictions.

The production and supply of biomass for electricity generation or vehicle fuels is likely to involve more substantive changes to farming activities, as this will normally involve a substitution of at least some existing production for new production of biomass energy. While bio-electricity may not be attractive in the short term as a direct competitor for food crops (except where existing farming options are marginal), there is substantial potential for bio-energy production in combination with multiple benefit plantation activity. This may create new options for farmers that help manage the risks of climate variability and change. Wider environmental impacts will vary with the



type and location of the biomass resource. There is potential for non-greenhouse environmental and natural resource management benefits from the use of trees and shrubs for biofuels. In many parts of Australia, the establishment of large areas of woody perennials, such as mallee scrub,31 could have significant dryland salinity and biodiversity benefits. However extensive plantings of some species could exacerbate water yield and river salinity problems in some areas, at least in the short term, and careful planning will be required.32 These issues are similar to those associated with the establishment of offset sinks, as discussed in Section 3.5. (Issues in the potential supply of biofuels are discussed in Section 2.2 below.)

There is little detailed information available on the aggregate net benefits to rural communities from these emerging energy industries. The data reported for these studies makes it difficult to estimate returns to farmers and rural communities from participation in these new energy industries. The Clean Energy Futures report provides the most detail, from which it can be calculated that total generation revenues are estimated at $3.7-4.2 billion for bio-electricity and $2.8 billion for wind (in 2004 dollars) by 2040, accounting for 33% and 24% of total generation revenues respectively.33 Applying these unit prices to the electricity generation estimates for the scenarios in the REGA report suggests potential revenues of $47-315 million for biomass and $254-753 million for wind in 2020.34 At a more micro level, wind farms typically provide ground rent or resource royalty payments to landholders, which compensate for disruption to farming and other activities. Current practice is for wind energy companies (which own the turbines) to pay landowners $2,000-$4,000 per year per megawatt of installed generation capacity, for a lease of 25 years or more,35 although there are reports of developers paying up to $10,000 per turbine. This approach allows wind energy companies to focus on electricity generation, leaving farmers to manage their farm land. The form of payment varies and the exact amount may be influenced by a range of factors, such as the quality of the wind resource (wind speed and reliability), and distance to the grid.

Table 2 thus presents new estimates prepared by CSIRO for this report of potential wind royalty payments, indicating that payments to landholders could total more than $147 million per year across Australia with an ambitious emissions reduction target or other policy support for renewable energy. These estimates are based on the electricity supply potential shown in Table A1 (Appendix A), taking account of intermittency related limits on the share of wind based generation capacity. These estimates do not, however, take account of likely competition from other generation sources. The high estimates of total wind generation in the REGA report are equivalent to about 30% of the potential supply in Table A1, suggesting wind royalties of $44 million for these scenarios.



Table 2 Estimates of potential wind royalties by region for different carbon prices

Potential wind royalties or payments to landholders

Carbon price: $50 t/CO2e $65 t/CO2e

Region $m $m NSW - coastal 22 39 - 82 NSW - inland and ACT 34 43 - 82 Northern Territory 5 3 Queensland - south-east 8 29 - 61 Queensland – mid 2 8 - 61 Queensland - far north 9 24 - 61 Tasmania .. 12 SA and Victoria - coastal 27-48 22 - 76 Victoria – inland 21-48 39 - 61 Western Australia - south west 7-22 10 - 28 Western Australia – other 15-22 19 - 28

Australia 147 263 Notes: Rows may not add to totals due to rounding. Source: Potential wind energy supply from Table A1 capped at 25% of projected demand for each state, with annual payments to land holders of $3,000 per MW installed.

2.2 Prospects for biofuels

Biofuels currently supply less than 0.5% of transport fuel use in Australia, although there are many plans to increase production. Ethanol can be used in most Australian vehicles at blends of up to 10% ethanol in petrol. Biodiesel can be used in diesel engines at up to 100% but current and planned use is mostly for blends of 2%, 5% or 20% with mineral diesel.

The environmental benefits and financial viability of biofuels depends on the specific feedstocks and technologies used, as well as the wider market context (which determines the cost of feedstocks and potential economies of scale in production). Net emissions outcomes depend on the specific production system used, including the source of energy inputs, and can involve minimal reductions in net emissions or even – in some cases – higher total emissions than mineral fuels (especially where crops and processing use significant energy or where forest is cleared for feedstock production, such as for palm oil in Asia).

Around 60% of world ethanol supplies are produced from sugar, primarily in Brazil, with most of the balance made from grains. Ethanol from waste starch or C-molasses and biodiesel from waste oil can currently be produced for less than 45 c/L, which is broadly competitive with mineral oil at US$40/barrel, while ethanol from sugar and biodiesel from tallow or canola can be produced for less than 80 c/L, which is broadly competitive with US$80/barrel. Estimates of Australian sugar-based ethanol production cost range from 65 to 100 c/L.36 The production cost of corn-based ethanol made in the US is more than twice that of cane-based Brazilian ethanol.

There is some evidence that overseas policy support for biofuel production – particularly in the US – has been one of a number of factors contributing to significant recent increases in US corn prices, with flow-on effects through rising prices for milk, eggs, chickens, and corn flour in China, India, Mexico and the US, as well as higher prices for grains and vegetable oil in Europe.37 Associated increases in world grain prices have contributed to increased demand and profits for Australian farmers. The recent OECD-FAO Agricultural Outlook emphasises that the “growing use of cereals, sugar, oilseeds and vegetable oils to satisfy the needs of a rapidly increasing biofuel industry … may keep prices above historic equilibrium levels during the next 10



years”, and that “while higher biofuel feedstock prices support incomes of producers of these products, they imply higher costs and lower incomes for producers that use the same feedstock in the form of animal feed” and “are a particular concern for net food importing developing countries as well as the poor in urban populations”.38

The major current national policy on biofuels involves a 350ML target by 2010,39 supported by a production grant offsetting the excise paid on biofuels and a capital grant that provides around 1 c/L assistance over the lifetime of eligible production facilities. Industry projections announced in the December 2005 Biofuels Action Plan suggest that this target is likely to be exceeded, with total production projected to be over 400 ML by the end of 2010.40

Significant barriers to the expansion of Australian biofuel production remain, however, including misplaced consumer concerns about negative impacts of biofuels on engine components, scheduled reductions to the level of production grants (offsetting fuel excise) from 2015, and limits to the expansion of domestic low cost feedstock supplies.41 Industry studies indicate increasing competition with grains for food, and with feedgrain for the livestock industry if the Australian ethanol industry expands to its planned production capacity, and that the expansion of Australia’s biodiesel industry would increase competition with soap and detergent manufacturers for feedstock. Other environmental impacts also need to be taken into consideration when looking at promoting and advocating an expansion into biofuels.

Against this, it is likely that a whole new set of markets for second generation feedstocks (based on lignocellulosic production) could emerge, which have not been developed or explored in Australia. In general, non-food feedstocks outperform food-based feedstocks on energy, environmental, and economic criteria. Trees, other woody plants, and various grasses and forbs (weeds), can all be converted into synfuel hydrocarbons or cellulosic ethanol, and may be produced on poor agricultural lands with little or no fertilizer, pesticides, and energy inputs. Second generation technologies could greatly expand potential bioenergy supplies, such as through biorefineries for range of high value biobased products, with biofuel and energy as coproducts. Potential resources include large scale planting of oil mallee, grasses, algae. Other native woody species are being investigated for a range of new products including novel wood and bio-based products as well as energy.42 In many cases these second generation technologies are able to use the same feedstock to produce either bio-electricity or liquid biofuels, creating additional opportunities but also the potential for competition across these markets.

Overall, this suggests that significant further expansion of domestic biofuel production would require step changes in production technologies or specific policy action in addition to the introduction of emissions trading.

2.3 Factors influencing the potential supply of clean energy

Policy settings announced in the next few years will be the most important influence on the long term supply of clean energy in Australia, and the associated opportunities for rural businesses and communities, along with the development of more cost-effective technologies for biofuels, solar thermal, geothermal, tidal and clean coal and CCS. The development of renewable energy and natural gas in the current generation mix has been underpinned by specific state and commonwealth policies. These include the Mandatory Renewable Energy Target (MRET) Victorian Renewable Energy Target (VRET), Queensland Natural Gas Scheme (QGEC), and NSW Greenhouse Gas Abatement Scheme (GGAS), all of which promote a more diverse set of generation technologies than would be financially viable without a carbon price. This support has been estimated to be equivalent to a carbon price of at least $30/t CO2e for the first three schemes, and between $10 and $30/t CO2e for the GGAS scheme.43 South Australia and Western Australia have also implemented renewable energy targets of 15% by 2015 (SAMRET) and 6% by 2020 (WARET), with both states considering proposals to increase these targets to 20% of total supply.44



The two key issues that will shape Australia’s energy future and the mix of generation technologies under emissions trading will be the nature of Australia’s mid term targets for emissions reductions, and the complementary policy support provided for the use of alternative technologies for electricity generation.

Policies that are interpreted as signalling modest short and mid-term emission reduction targets will imply lower carbon prices and favour gas fired generation, while mid term targets on a trajectory to emissions reductions of 60-80% by 205045 imply higher carbon prices over the longer term and will drive higher levels of investment in renewable generation;

‘Active technology policy’ establishes incentives or mandates for specific groups of technologies, such as the MRET requirement for a specified share of electricity to be sourced from mandated renewable technologies, or the Government’s recently announced 30,000GWh by 2020 Clean Energy Target focusing on the supply of electricity generated at, or below, 0.2 tonnes of CO2e/MWh. This has the effect of attracting investment to technologies that would otherwise not be financially attractive (in the absence of emissions trading, or with relatively low expected carbon prices).

‘Neutral technology policy’, by contrast, establishes a single incentive through establishing emissions trading and a trajectory of allowable emissions. This puts a price on emissions and focuses investment on whatever technologies are able to deliver electricity at lowest financial cost, given expectations about the trajectory of future carbon prices, but does not account for potential benefits arising from the deployment of a more diverse set of technologies.

Identifying the optimal policy mix is complex. Recent commentary on emissions trading appears to lean towards a more neutral policy stance than has been in the case over the last decade (on the basis that the introduction of emissions trading reduces the benefits of active technology policy). Detailed modelling of the electricity sector indicates, however, that additional support for clean or renewable energy before 2020 (when carbon prices are expected to be relatively low) would result in lower long term electricity prices than a neutral policy approach.46 This is because an active technology approach promotes ‘learning by doing’ and supports investment in a larger critical mass of generation with near zero emissions, which puts significant additional downward pressure on electricity prices. A similar outcome could be achieved with a neutral technology policy accompanied by a credible early public commitment to more rapid reductions in allowable emissions. This highlights the more general point that appropriate policy settings are required to ensure that enterprise-level investment decisions can deliver the best economy wide level and mix of electricity supply over time, taking account of future uncertainties and the lock in effect of incremental generation investments over time.

Other factors influencing investment in clean energy will include the policy framework surrounding the approval of wind farm developments; the evolution of community attitudes towards wind, the possibility of emerging technologies such as geosequestration; the development and demonstration of specific production technologies (particularly niche biomass products based on existing wastes); agricultural market conditions influencing the relative returns to food and energy products; and the growth in electricity demand (influenced by underlying demand growth and the penetration of energy efficiency measures).

The South Australian Government is in the process of introducing a feed-in tariff to support home installation of solar photovoltaics, and other state governments are also considering introducing feed-in-tariffs. In Germany, feed-in tariffs of around four times the retail electricity price are considered to have underpinned the large expansion of solar photovoltaic electricity generation capacity in that country. It is expected that feed-in tariffs legislated here would only be set at around twice the retail electricity price, complementing direct subsidies for solar photovoltaic installations and



renewable energy credits available via mandatory renewable energy purchase schemes. Retailers already pay a tariff for electricity fed back into the grid via electricity generation within a building. Feed-in tariff legislation would simply place a floor on the price retailers have to pay. It is argued that the price currently paid to embedded generation is too low and fails to recognise that, in the case of solar generation in particular, it can provide power to the grid during the hottest part of the day when the wholesale electricity price can be very high.

Overall, these considerations and the information provided above suggests that a substantial increase in clean electricity supply is possible and cost effective with the introduction of emissions trading and complementary energy efficiency and clean or renewable energy policies, including technology policies, and could provide significant net benefits to rural Australia. The extent of renewable energy supply – and associated benefits to rural communities – will depend crucially on policy settings. Adopting a neutral technology stance and modest emissions reduction target would be likely to result in substantially smaller renewable energy use than active policy support for renewables or a more ambitious emissions target. Achieving a 25% renewable or clean electricity target nationally by 2020 would be challenging, but appears feasible with appropriate policy support.47 The cost effectiveness of this policy will depend on the details of policy implementation and the precise timing of the targets set.



3. Mobilising agricultural mitigation and emissions offsets

The introduction of emissions trading will draw attention to agricultural emissions and bio-sequestration opportunities. Direct emissions from agriculture accounted for 16% of Australian emissions in 2005, with land use, land use change and forestry accounting for a further 6% of emissions. Total emissions from agriculture, fishing and forestry, including fossil fuel use and indirect energy emissions accounted for almost 25% of national emissions.48

The national emission trading scheme will initially exclude direct emissions from (i) agriculture, land use and waste until “practical issues are resolved” (see Section 1), and (ii) facilities emitting less than 25,000 tCO2e per year. As shown in Table 3, excluding direct emissions from agriculture, land use and land use change excludes more then 95% of the total emissions from the agricultural sector.49 At the national level, the first exemption excludes around 30% of total emissions while the second excludes around 14% of total emissions, so that the scheme will initially capture around 55% of total emissions. Trade exposed emissions intensive industries will be insulated from the potential anti-competitive effects of introducing emissions trading ahead of key export competitors, including through offsetting the cost burden of ‘indirect emissions’ reflected in higher electricity prices. Depending on the criteria and definitions applied, this might insulate up to a further 23% of total emissions associated with metals, other mineral products and manufacturing (perhaps representing as much as 40% of emissions captured by the scheme).50

Despite this initial exclusion, the size of total agricultural emissions and the likelihood that some abatement opportunities will be highly cost effective makes it “likely that governments will want to see agriculture fully involved in the emissions reduction effort, including being participants in emissions trading as soon as possible”.51

This policy context raises a number of complex issues for farmers and others interested in reducing net emissions from agriculture and land use change:

the implications of difficulties in measuring and attributing agricultural emissions at the farm level;

potential competitiveness impacts of the initial emissions trading arrangements, and longer term implications of the possible inclusion of direct agricultural emissions;

complementary policy options (other than emissions trading) for achieving abatement of agricultural emissions;

issues associated with the recognition of past emissions reductions; and

the potential scale and attractiveness of supplying carbon offsets under emissions trading.

These issues are discussed in turn.

3.1 Measuring farm level agricultural emissions

The primary rationale given for initially excluding direct agricultural emissions from emissions trading is that measurement of these emissions is relatively unreliable, involves many agents or measurement points, and would involve high measurement and transaction costs per tonne of emissions.52 Direct agricultural emissions are very diffuse, and arise from a wide range of sources and activities, each of which can be highly variable. This range of activities is reflected in the options for reducing agricultural emissions identified by the Australian Farm Institute:53

livestock and pasture management to reduce methane from ruminant livestock;

minimum tillage to reduce fuel use and soil carbon emissions;

grazing and crop management to reduce emissions or increase sequestration;



improved fertiliser management;

improved manure and effluent management in intensive livestock sectors;

agroforestry or other farm based revegetation.

Methane from ruminant livestock is the largest single source of direct agricultural emissions, accounting for two thirds of direct agricultural emissions in 2005 and 11% of Australia’s total annual greenhouse gas emissions. With additional research and on farm testing, it is estimated that these emissions might be reduced by 30% through technologies such as feed supplements and management of rumen bacteria.54 This would also be expected to provide farm level benefits through improved animal productivity (as food energy currently used to produce methane would be available for meat production).

Soil management and fertiliser use is the second largest source of agricultural emissions. There is a range of techniques available to reduce nitrogen emissions from fertiliser and to enhance soil carbon, including improved management (best practice fertiliser use, stubble retention, and minimum tillage), bio-char sequestration, and the use of grasses that provide near-permanent ‘plantstone’ carbon sequestration.55

Table 3 Direct and Indirect Agricultural Emissions, 2005

Emissions in 2005 Source

Mt CO2e share

Change from 1990

Enteric fermentation in ruminant livestock 58.7 40% -8%

Manure management – piggeries, feedlots and dairy 3.4 2% 66%

Rice cultivation 0.2 .. -56%

Soils (non-CO2 gasses),including fertiliser use 16.6 11% 15%

Savannah burning 8.7 6% 31%

Agricultural residue burning 0.4 .. 21%

Sub total – direct agricultural emissions 87.9 60% <1%

Transport fuels, LPG and natural gas (a) 6.2 4% 82%

Electricity (b) 0.3 .. -7%

Landuse change (land clearing) (c) 53.3 36% -59%

Total – all agricultural emissions 147.5 100% -33%

- excluding energy emissions 141.2 96% -35% Notes: (a) calculated from ABARE energy use data using AGO emissions factors; (b) indirect emissions from energy generation, Scope 2; (c) emissions from landuse change in 1990 were 128.9 Mt CO2e. Sources: Tables 3 and 4 AGO 2007a56; Table 6 AGO 2007b57 sector; Table 2 Keogh 2007; AGO 200658; Tables A2 and F ABARE 200659

Measurement or estimation of these emissions (or reductions in emissions) is complex, costly, and subject to significant uncertainty. Estimating methane emissions is particularly difficult, with emissions varying over seasons with feed and conditions, and with fluctuations in livestock numbers. Soil emissions also vary with farm practices and conditions. The result is that it is difficult to identify an approach to measurement and accreditation of total farm emissions that would provide the required confidence with acceptable transaction costs. In the words of Mick Keogh of the Australian Farm Institute:

“On a single farm there may be a dozen different practices that abate [or sequester] greenhouse emissions from that farm, but the direct measurement and validation of those practices would be very expensive and impractical, as some of the practices will be carried out at different times of the year … The regular fluctuations in livestock numbers on a broadacre farm as a consequence of seasonal cycles and marketing



decisions adds to the complexity of any accreditation or certification system that might be developed”.60

These practical issues work against the immediate inclusion of agricultural emissions in emissions trading as either liabilities for emitting parties (through full inclusion of agricultural emissions in the scheme) or the creation of voluntary offsets.61 However concerted efforts must be made towards creating some practical standards that would enable the sector to participate in national efforts to reduce emissions, and position Australian agriculture for a future where emissions are an increasingly important issue.

A number of additional factors are likely to work against the scheme allowing the creation of voluntary offsets for mitigating agricultural emissions. Creating credits for reducing emissions would effectively ‘grandfather’ agricultural emissions, giving credit for any reductions from historical levels, and would sit awkwardly with the requirement that operators in other sectors purchase permits to cover all of their emissions (as discussed in Section 3.4). This would also greatly complicate the politics of any future move to include agricultural emissions in the mainstream system. Technical measurement issues are even more difficult for tradable voluntary offsets because they require attention to additionality (which is not necessary when permits need to be purchased to cover all emissions) and the definition of a baseline, as well as robust estimates of actual emissions.

3.2 Competitiveness issues

A second issue relevant to initially excluding agriculture is that a large proportion of agricultural emissions relate to exported products, which typically account for 60-70% of the value of agricultural production.62 This implies that including agricultural emissions in the emission trading scheme could trigger a requirement for insulation through free permit allocation or other mechanisms on competitiveness grounds until other major agricultural exporters – many of whom are high income developed nations – face similar emissions liabilities.

A more immediate potential concern is that the introduction of emissions trading will be likely to increase the prices of fuel and other energy-intensive inputs such as fertiliser and freight (although complementary policies, such as energy efficiency and clean energy targets would reduce the extent of these price increases). Direct energy costs account for around 10% of total farm input costs, and freight and chemicals accounting for a further 25% to 35% from 1990-2006.63 Increases in these input costs due to emissions trading thus has the potential to reduce the competitiveness of Australian agricultural exports, unless Australia’s major competitors face similar policy settings or increases in input costs.

Data presented in Table 4 indicates that the average emissions intensity for agriculture as a whole would be high if direct emissions were included in emissions trading, but is much lower when direct emissions are excluded.



Table 4 Energy intensity of selected trade exposed sectors, 2005

Sector Emissions Energy

use Value added

Emissions intensity

Energy intensity

MtCO2e PJ (a)(b) $b (a)(c) tCO2e/$'000 J/$ (d)

Agriculture – all emissions (e) 147.5 (*) 24.7 5.97 (*)

Agriculture, forestry and fishing – all emissions (e)

128.2 96.0 27.2 4.71 3.54

Metal products 32.7 553.8 17.3 1.89 32.50 Petroleum, coal, chemicals 19.0 (*) 12.7 1.49 (*) Mining (inc petroleum and coal) 46.3 371.8 45.1 1.03 8.05

Agriculture – fuel and electricity emissions only

6.5 (*) 24.7 0.26 (*)

Food, beverages, textiles 4.0 210.2 22.6 0.18 9.37 Wood, paper, printing 2.3 72.5 18.1 0.13 4.03 Transport and storage 2.3 1,306.5 40.0 0.06 31.89

Notes: (*) not available; (a) 2005 data presented is the average of 2004-05 and 2005-06; (b) final energy use; (c) gross industry value added; (d) ratio for 2005-06; (e) includes all emissions sources in Table 3 in this report, including land use change. Sources: Calculated from AGO 2007b; ABS 2007 Cat.No 5606; ABARE 2007.

Most of the Australian discussion of competitiveness issues associated with emissions trading is focused on energy intensive manufacturing (particularly aluminium, alumina, steel, and minerals processing) and mining and extraction of energy resources (which release significant fugitive emissions).64 Economic modelling exploring competitiveness issues for the Prime Ministerial Task Group on Emissions Trading includes scenarios where agriculture is shielded along with natural gas, iron, steel and non-ferrous metals but notes that “removing the shielding from agriculture significantly reduces the (national) GDP impact” of emissions reductions.65

This, along with the data presented in Table 6, implies that agricultural sectors would be very likely to be eligible for insulation from adverse competitiveness impacts if direct agricultural emissions were included in the Australian emissions trading arrangements before similar actions where taken by other exporting nations. It is unlikely, however, that agriculture will be considered a priority for insulation under initial arrangements that exclude direct emissions. Importantly, it is not clear that current policy development is giving adequate consideration to the extent of potential competitiveness impacts on agriculture due to increases in fuel and other input costs. Furthermore, administrative arrangements that are suitable for this small number of large industrial plants – such as free allocation of permits on the basis of a plant specific formula – may not be suitable for large numbers of diverse agricultural exporters, many of whom are relatively small, and so a different policy approach may be required.

Against this, policy induced increases in fuel costs are likely to be relatively small, with modelling suggesting real increases of 5% for petrol and 10% to 15% for diesel above inflation over 20 years above inflation (for carbon prices of $40 to $50/tCO2e).66 A similar increase in fertiliser costs would be likely to result in a total increase in input costs of less than 3% by 2025 above inflation, before accounting for potential cost savings from improved efficiencies. Impacts of this magnitude could be easily offset by benefits from other policy actions, such as increased support for adaptation to climate variability, the co-benefits of abatement policies (discussed below), or reductions in business taxes funded from the proceeds of the auction of emissions permits. Engaging policy makers on this issue is thus a priority.



3.3 Policy options for achieving abatement of agricultural emissions

The difficulties in measuring farm level emissions and potential competitiveness impacts of including agricultural enterprises as liable emitters in an emissions trading scheme focuses policy attention on the possibilities for “other policies designed to deliver abatement” in agriculture. Policies canvassed by the Australian Farm Institute67 and others68 include:

restrictions or accreditation requirements for fertiliser application, such as a ban on uncoated nitrogen fertiliser or restrictions on application at certain times of the year;

taxes or subsidies for inputs associated with higher or lower emissions, perhaps linked to implementation of accredited management practices;

flat rate or differential taxes reflecting average emissions per unit and applied to livestock numbers, agricultural outputs (such as dairy products), or different classes of land use;

incentives for the adoption of best management practices in relation to greenhouse gas emissions;

mandatory management requirements or access to voluntary offsets for intensive or ‘industrial’ agriculture with high unit emissions, such as manure management systems for piggery or dairy waste.69

While each of these options warrants further investigation, the immediate emphasis should be on supporting innovation and exploration, rather than on implementing more prescriptive approaches. New regulations are not supported at this stage by the Prime Ministerial Task Group, which states that “the scope for new cost-effective regulation … appears to be limited (… and) there are few obvious additional regulatory options available” – particularly given that “land clearing … has already been regulated in most states to achieve both improved natural resource management and greenhouse gas mitigation”.70

This suggests policy effort might initially focus on identifying best practice and providing education and support, with a view to implementing publicly funded agricultural mitigation programs where these are cost effective. This might provide financial support for mitigation, without allowing landholders to ‘profit’ from mitigation activities, although a well designed program would likely deliver co-benefits to farmers (such as improved animal weight gain associated with reduced methane emissions, but which are not cost effective to pursue on the basis of the production benefits alone).

While estimates are difficult, a program along these lines might involve government outlays of $70-120 million a year to achieve a 10% reduction in direct agricultural emissions in the short to medium term.71 This would represent a highly cost effective investment of a small portion of the revenues available from the auction of emissions permits, estimated to be $4 to $12 billion per year after the first five years.72 While such an approach may be deliberately designed to support mitigation outcomes without allowing individual landholders to ‘profit’ from this public investment, it would demonstrate the commitment and involvement of the farming community in tackling climate change, and help position the farm sector for a future where managing emissions may become an increasingly important issue for marketing and market access.

Increased investment is required in research to develop practical options for reducing net greenhouse emissions from agriculture and natural resource management activities. Collaboration with researchers in other nations, such as New Zealand, should also be supported. This is consistent with the emphasis of the Prime Ministerial Task Group on “the need to improve understanding of emissions measurement and abatement options in this sector suggests an immediate priority for increased research



and development”.73 Indeed, careful reading of the Task Group report suggests that the stated intent to include agricultural emissions in the emissions trading regime, and to pursue other abatement opportunities, may be primarily designed to motivate this applied research effort.74

From a farming and business perspective, it is desirable that emissions abatement policies provide positive incentives for continuous improvement and innovation, and for achieving early emission reductions from the sector. The size and significance of agricultural emissions implies, however, that a voluntary approach might not be acceptable over the longer term unless it delivers most or all of the total mitigation available, or Australian action is seen to at least keep pace with the achievements of other major agricultural exporters.

3.4 Recognition of land clearing in emissions trading

Many farming groups and commentators have been disappointed by the way in which legislation banning broadscale land clearing has put Australia on track towards meeting its Kyoto emissions target “with all the costs being borne by affected farmers”.75 While there is debate about the value of transition payments made by state and federal governments, there are risks if this is allowed to distract farmers and rural communities from what is at stake in the development of future emissions policy.

The current policy intent is that all liable parties will be required to purchase emissions permits to cover their emissions (either directly through auction, or later from other parties). Under this policy free permits will only be allocated as a one off allowance to offset a larger than average loss of asset value (such as for electricity generators, who may not be able to pass through the full value of permits to customers), and through ongoing arrangements to address export competitiveness issues. The details for both these arrangements are currently being developed.

This stance is radically different from other emissions trading systems, such as the EU Emissions Trading Scheme (EU ETS), which have tended to allocate all or most emissions permits free of charge to existing emitters. This ‘grandfathering’ of emissions permits involves a substantial wealth transfer, does not prevent energy price rises (and associated social and economic impacts), and undermines price visibility and stability in the emission permit market.76 To put this in perspective, free allocation of permits in the EU ETS is estimated to have resulted in windfall profits of €5 to €10 billion in the first year alone.77 78 The value of auction revenues from Australian emissions permits will depend on the emissions trajectory and the extent of free allocation, but could be $4 to $12 billion per year after the first five years (assuming the current exemptions are maintained).79 Revenues of this magnitude open up a range of options for funding programs to reduce emissions and address the impacts of climate change, reducing existing taxes, and investing in valuable social and economic infrastructure.

Looking forward, this policy stance implies that landholders should not assume that reductions in rates of land clearing from historical levels would give rise to a credit or emissions entitlement, and should consider the possibility that any allowable future land clearing may give rise to an emissions liability, just as energy utilities will be liable for all emissions from fossil fuel use, rather than receiving a credit for any reduction in emissions relative to past levels. Depending on future carbon prices, this would render most broadscale land clearing uneconomic – if it was allowed – unless the carbon already sequestered in this vegetation was permanently captured. The flip side of this policy stance is that it enhances the incentives for the creation of new farm based vegetation offsets, which offer substantial revenues.

This perspective has two main implications. The first is that land clearing legislation effectively brought forward restrictions on the clearing of vegetation (that the Prime Ministerial Task Group implies would otherwise have been introduced alongside emissions trading – see Appendix B), and that emissions trading might provide an



opportunity for seeking increased flexibility in vegetation management (subject to emissions liability and potential environmental offset arrangements). The second is that failing to engage with the development of emissions trading arrangements would carry substantial risks for the agricultural sector, while actively engaging in policy development would position farmers to help shape policy and ensure its effectiveness on the ground.

3.5 Potential supply of carbon offsets

In contrast to the outlook for mitigation offsets (for reducing direct agricultural emissions), it is almost certain that policy settings will provide credits for plant based sequestration of emissions (which remove carbon from the atmosphere), subject to some specified audit and governance requirements. How emissions are accounted for on harvest will have important implications for the value of these activities. (Treating structural timber as a carbon store, for example, will result in more net credits from carbon forestry than an accounting standard that assumes carbon is released back into the atmosphere when trees are harvested.)

It is useful to think of the emerging offset industry as a value added product involving inputs of carbon (sequestered in trees or soil), verification (through appropriate management, accounting and audit), and marketing. This industry can not and will not exist without the active participation of land owners, who supply the basic carbon service, but also requires the other components of the product, which may take a substantial share of the total revenues generated. A number of carbon offset providers and brokers have already emerged, with one recent report listing twelve organisations that market both formal offsets (accredited under NSW GGAS) and voluntary offsets providing some biodiversity or other environmental benefits in addition to sequestration.80 Most current schemes fall into one or other category – with formal offsets or ‘industrial carbon’ focused on larger scale plantings of commercial forestry species offering commercial returns and cost effective sequestration (and), while ‘charismatic carbon’ is more focused on other environmental benefits (such as regeneration of biodiversity values, or improved wetlands and water quality). At this stage, it is notable that ‘industrial carbon’ offerings tend to involve higher standards of carbon accounting and verification than ‘charismatic carbon’.81 Greening Australia’s Breathe Easy product is an exception, offering large scale biodiversity restoration and with formal carbon accounting at a premium price. This difference in attention to standards is likely to be overtaken by the development and implementation of formal national accreditation arrangements. Soil sequestration may also become a source of carbon offsets internationally in the future when accountability and verification issues are resolved.

The returns to farmers from establishing vegetation based and other offsets will depend on the price of carbon, accreditation requirements, and cost sharing (such as who is responsible for vegetation management, monitoring, and verification). Current policy notes that the government will “develop standards for robust and transparent offsets to be accredited for use in the Australian Emissions Trading System”,82 addressing concerns expressed by some groups that offsets could be used a form of greenwash, or undermine genuine abatement activity.83 The accreditation standards under the new emissions trading scheme may not match the rules associated with the Kyoto Protocol, but are still likely to require additionality and permanent or long term sequestration. ‘Additionality’ requires that offsets provide sequestration that would not have occurred without emissions trading, and is likely to be measured as the increased carbon sequestration from the land involved relative to a 1990, 2000 or 2010 base year. ‘Permanence’ requires that the offset provided represents a permanent or long term reduction in total emissions, and in practice means that many offset arrangements will only sell a fraction of the current sequestration achieved (recognising that only some of the sequestration is long term, while some of the stored carbon will be released later in the project cycle). Crucially for landholders, most high quality arrangements require sequestration agreements to be registered on



title for period of up to 100 years. Given that large scale participation in supplying offsets is only likely to occur at high carbon prices, it is in most farmers’ interests that accreditation is seen as technically and environmentally credible and robust (and worth paying for), while keeping transaction costs reasonable.

Current sequestration schemes generally sell offsets for between $8 to $15 t/CO2e, some fraction of which is paid to landholders.84 At this price, participation in sequestration activities is marginal for most farmers, illustrated by an anecdote that only one in ten farmer inquires (to one scheme) currently lead to a signed sequestration contract after the farmers have evaluated the pros and cons.85 This suggests that the verification and marketing requirements of offsets consume a large part of the available revenues at current prices, and that the remaining funds are not large enough to compensate farmers for the loss of flexibility in managing their land or the perceived risk that this may reduce the market value of their property. In a competitive market, however, farmers would be well positioned to capture a significant share of any increase in carbon prices as suitable land is likely to be the limiting resource, and verification and marketing costs are unlikely to rise in line with future prices.

Table 5 presents new CSIRO estimates prepared for this report of the national sequestration potential that could be achieved through establishment of vegetation based offsets (assuming the ‘industrial carbon’ approach outlined above). These estimates were undertaken for this report, and assume the establishment of 150,000 hectares of commercial forestry species per year for 15 years. This compares to an average of 70,000 hectares per year over the last decade, and is equivalent to 6% of Australia’s sown pasture land by the end of the period. For the purpose of the estimate new plantings are assumed to be evenly distributed across statistical divisions, with sequestration rates proportional to average pasture productivity. More details are provided in Appendix C.

The estimates suggest that sequestration offers access to very significant carbon revenues, and that this is likely to be a financially attractive option for landholders at carbon prices above $20 t/CO2e. Consistent with observations that sequestration is only attractive in niche situations at current prices, gross revenues after 15 years are estimated at around $160 per hectare, rising to around $200 per hectare after 20 years. While this compares reasonably with current returns to beef and sheep, the additional margin is not sufficient to compensate for the low returns in the plantation establishment phase (where annual sequestration potential is very low). When this is taken into account, the carbon revenues are between one third and two thirds of the value of gross revenues from sheep and beef production over 25 years, on a net present value basis. At a carbon price of $50 t/CO2e, however, gross carbon revenues are equivalent to the very top of the range of average returns to beef and sheep over 25 years (estimated at $200 per hectare), and provide even higher returns from years 20 or 25. This suggests that diversification of farm income through establishment of some farm forestry would be likely to be an attractive proposition for many farmers at carbon prices in the top half of the projected range of $20 to $75 t/CO2e by 2025 (see Figure 1 in Section 1).

In simple terms this suggests that the net additional revenues or profits available from carbon offsets, taking account of the opportunity cost of displaced agricultural production, would be over $550 million per year after 15 years at a carbon price of $50 t/CO2e and $1,000 million per year at $75 t/CO2e (see Appendix C). This represents additional income of $180 per hectare per year, or more, on average over 40 years.86

Plantings of this magnitude would also make a significant impact on Australia’s total emissions, achieving sequestration equivalent to around one fifth of current agricultural emissions each year for a period of at least 25 years.



Table 5 Indicative potential vegetation offset sinks

State Sequestration from new

plantings Potential gross

carbon revenues

land area

(yr 15)

average increment yrs 15-20

average increment yrs 20-40

$20 t-CO2e

$50 t-CO2e

thousand hectares

million t-CO2/yr

million t-CO2/yr

$m/yr (yrs 15-20)

$m/yr (yrs 15-20)

NSW and ACT 415 4.38 5.26 88 219

Northern Territory 8 0.05 0.06 1 2

Queensland 388 2.87 3.44 57 143

SA 292 2.13 2.56 43 107

Tasmania 76 0.77 0.92 15 38

Victoria 450 3.78 4.54 76 189

Western Australia 621 4.38 5.26 88 219

Australia 2,250 18.36 22.03 367 918

Source: CSIRO estimates as described in Appendix C.

A final point is that the long lead times in establishing and delivering offsets underscores the need for clear guidance on accreditation standards and long term policy intentions, such as in relation to the expected quantity of emissions permits in over time. The sooner these issues are resolved, the sooner farmers and others can evaluate the pros and cons of involvement in the delivery of offsets, and play their part in the cost effective achievement of Australia’s greenhouse policy objectives.



4. Supporting environmental stewardship on private land

Climate change will have widespread effects on landscapes and ecosystems, particularly through changes to seasonal temperature ranges, reductions in rainfall and surface water flows across much of Australia, greater variability, and increases in the frequency and severity of storms and other extreme events.87

As well as presenting new challenges for many of our rural industries and communities, these changes will exacerbate pressures on many of our native plants, animals, and natural ecosystems.

One opportunity to respond to these pressures on landholders and ecosystems is to introduce environmental stewardship payments for farmers who undertake conservation activities or provide ecosystem services on private land. Stewardship payments thus could have a key role in future climate policy, helping to maintain healthy, productive and resilient landscape systems and maintaining environmental values for current and future generations.

4.1 The case for environmental stewardship

Stewardship payments are a way of creating positive economic incentives for natural resource managers to mange their land and activities in ways that improve or maintain environmental functions.88 They normally involve governments or non-government organisations providing direct payments to farmers and other landowners to undertake ‘environmentally friendly’ activities such as providing habitat for endangered species, reducing stocking pressures, or improving water quality and yields through watershed protection.89 Some of these actions may also help sequester carbon in biomass or soils, and so may also be eligible for financial support through an emissions trading scheme as carbon offsets.

Stewardship payments are intended to act as payments for the production and supply of ecosystem services, just like farmers are currently paid for the production and supply of wheat, beef, wool or cotton. Payments should focus on actions that go beyond what the community would normally expect of landholders in managing their land. Stewardship payments differ from other policy approaches in that they do not impose new duties or obligations on land managers through regulation, but instead offer incentives to motivate changes in behaviour and (unlike most government grants) are able to cover payments for labour or possible reductions in production income. This voluntary-based approach is appropriate for encouraging actions that are considered desirable, but are not widely considered to be a legal or moral duty.90

Stewardship payments may also be interpreted as a more general mechanism for supporting sustainable land use and public good landscape outcomes. This recognises that it will not always be feasible or appropriate for farmers to bear the whole cost of the transition to sustainable resource use.91 92 This is for a number of reasons:

Over 60% of Australian agricultural output is exported, making it difficult to pass on costs that might be associated with achieving higher environmental standards to the consumers of those products (in the absence of similar policies being implemented in other exporting nations);

While there are good reasons for asking farmers and other resource managers to bear the costs of preventing future damage to the natural resource base – which is their core business asset – these reasons often do not apply to the repair of damage resulting from past actions;

Achieving improved biodiversity and habitat outcomes will not always provide net production benefits to farmers, and so it is reasonable to expect the wider community to contribute to the cost of achieving these outcomes.

The use of stewardship payments has received significant attention in recent years in Australia and overseas – particularly the US and Europe. Most Australian effort has



focused on pilots and the design of catchment-level policy tools, 93 and expenditure remains modest compared to the US and Europe, where existing farm support payments have been redirected towards environmental objectives. As a result the US farm bill now provides over A$3.5 billion a year for conservation activities through nine major programs under the farm bill,94 95 and EU agricultural support is being progressively transformed to support conservation. 96 In the May 2007 Budget, the Federal Government committed nearly $100 million over four years for stewardship payments to protect and enhance the environmental values of box wood gum habitat in Victoria, NSW and Queensland,97 building on experience from state based stewardship pilots and programs.98 99

4.2 Potential supply of stewardship services

Estimates of the national potential for using stewardship payments are rare. In 2001 The Allen Consulting Group proposed a package of measures that would use $2.4 to $3.6 billion in public funds to leverage up to $12.7 billion in private investment.100 A follow-up study found that this approach is well suited to encouraging innovation, reducing risk premiums, and improving the returns to near commercial land uses offering environmental benefits, but that it is not an appropriate model for ‘pure’ environmental stewardship.101

Table 6 presents the results of new analysis undertaken for this report of the scale of potential biodiversity outcomes and payments to landholders associated with implementing an ambitious stewardship payment scheme across Australia. This was undertaken by researchers at the University of Queensland and is based on a scenario involving the implementation of cost effective voluntary agreements to secure at least 10% of each ecosystem and habitat type across Australia, accounting for differences in estimated land profitability values. This target is ambitious in relation to current biodiversity programs, but would be achievable through a stewardship approach. The analysis suggests that achieving this goal this would involve negotiating voluntary agreements for 8% of Australia’s total land area (noting that vegetation includes grasslands, savannah and arid zones as well as forest and other dense bush), which would more than double the effective area with ‘active conservation’ of native vegetation from 6% to 14% of the continent. The analysis assumes a range of mechanisms could be used to implement these agreements, including 10 to 20 year management agreements and – if agreed by landholders – permanent covenants on land title. The total annual stewardship payments required to achieve this are estimated to be between $0.7 to $1.6 billion per year. This compares to potential auction revenues from emissions permits of $4 to $12 billion per year after the first five years, taking account of potential free allocation of permits, or as much as $20 billion per year after a decade without any free allocation (equal to 1.6% of GDP).102

Selection of stewardship priorities is based on representation of a comprehensive range of biodiversity and ecosystem processes, and is limited to the protection of existing remnant vegetation (rather than considering potential regeneration of native vegetation). More details on the methodology used are provided in Appendix D. The precise level of government outlays required would depend on the details of how the stewardship system was designed and implemented, and the extent to which the system is able to harness carbon sequestration offset revenues to fund desired biodiversity outcomes. The potential synergies in achieving carbon sequestration and biodiversity outcomes are illustrated by a project underway for Cambium Global Timberland and the Gwydir-Border Rivers CMA in NSW. The project combines large scale forestry establishment, environmental plantings, and restoration of priority habitats across 8,500 hectares of land (with a 105 ML water licence). The carbon values of the project would not have been sufficient to justify the on ground environmental works, but equally the environmental outcomes could not have been achieved without the carbon revenues.103 Analysis of similar projects in the context of leveraging private investment suggests that permanent biodiversity plantings can



provide a valuable ‘carbon buffer’ for projects involving the growth and harvest of commercial forestry plantings.104



Table 6 Implementing a national environmental stewardship scheme – estimated area and annual payments

Region New land selected for stewardship

payments (a)

New land plus existing reserves (b)

Estimated total stewardship payments (c)

km2 share of state

share of state

low $m pa

high $m pa

NSW (d) 76,680 10% 15% 180 397

NT 111,492 8% 12% 2 5

Queensland 156,138 9% 12% 236 519

SA 72,616 7% 18% 97 212

Tasmania 13,350 20% 41% 78 171

Victoria 18,486 8% 20% 45 98

WA 199,491 8% 13% 102 223

Australia (c) 648,252 8% 14% 739 1,627 Notes: (a) new areas of native vegetation selected to achieve at least 10% of estimated historical extent of each vegetation type; (b) including vegetation in existing reserves and indigenous land selected for stewardship payments; (c) Total payments include $55-121 m in estimated payments for stewardship on indigenous lands; (d) no private land was selected for stewardship payments in the ACT

Figures 6 and 7 show the distribution of the land prioritised for stewardship payments as a share of different bioregions, and the distribution of the associated stewardship payments across Australia. Figure 6 shows the percentage of the total area of each bioregion (not including area already in reserves) that was selected for stewardship payments to represent 10% of the historical natural extent of all biodiversity features. Values range from 0%, in bioregions with existing reserves that currently represent 10% of local biodiversity, to 50% in bioregions that offer widespread cost-effective returns on stewardship investments because local biodiversity is under-represented and relatively cheap to secure through voluntary stewardship payments. Existing reserves are shown in grey. Figure 7shows the predicted average annual stewardship payments for each bioregion. Values reflect land prices and the value of forgone agricultural production, and range from near zero up to $40-400/ha in bioregions that are highly profitable and therefore have high predicted opportunity costs associated with conservation.



Figure 6 Distribution of total area selected for stewardship payments as a share of bioregion

Distribution of area selected for stewardship payments as a share of bioregion0% - 4.5%

4.6% - 7.5%

7.6% - 10.0%

10.1% - 13.0%

13.1% - 50.0%

Existing reserves

Source: Carwardine and Klein (The Ecology Centre, University of Queensland), as described in Appendix D.



Figure 7 Distribution of average stewardship payments per hectare by bioregion

Distribution of stewardship payments per hectare by bioregion$0.00 - $0.05

$0.06 - $0.50

$0.51 - $3.00

$3.01 - $40.00

$40.01 - $400.00

Existing reserves

Source: Carwardine and Klein (The Ecology Centre, University of Queensland), as described in Appendix D.

4.3 Effective national implementation of environmental stewardship

Stewardship payments have the potential to play a key role in addressing climate related threats to biodiversity and the integrity of our landscape systems. They cannot however be implemented effectively in isolation.

Achieving environmentally and economically sustainable natural resource management will involve addressing a range of complementary policy tasks, 105 including improved regional planning and priority setting, improving the targeting and oversight of investments, and ensuring that different arms of policy work together effectively. Directing stewardship resources to best use will require a coherent knowledge base, that harnesses and integrates the knowledge and expertise of local communities and the best available science through the development of knowledge based regional management plans. These plans would then provide the transparent knowledge base required for setting priorities and assessing investment and the allocation of voluntary stewardship payments. This process would also help ensure that funding is only provided for actions that are over and above what is required to prevent damage to



the long term productivity and health of the natural resource base, and help the coordination of planning, regulation, and investment – ‘the three arms of regional governance’ – while retaining transparency and ensuring a separation of the implementation and monitoring of stewardship investments. The plans would also help provide the confidence required to implement an ambitious program of national stewardship payments.



5. Conclusions – implications and priorities for action

The discussion and data presented above has a number of important implications for rural businesses and the communities that depend on them.

(1) Rural businesses and communities appear best served by more ambitious medium term emissions reduction targets

The interests of rural businesses and landholders are likely to be best served by scenarios involving more ambitious mid-term emissions reduction targets and higher carbon prices or policies that support renewable energy deployment in the medium term. The analysis presented above suggests that carbon prices of $15 to $30/t CO2e are unlikely to open up widespread new opportunities for rural business and communities to help address the adverse impacts of climate change, while carbon prices of $50 to $75/t CO2e could unlock significant financial resources, help diversify rural income streams, and promote rural employment. Higher carbon prices, all else being equal, are likely to:

improve average returns and total demand for renewable energy, including wind, bio-electricity, and biofuels;

improve average returns and total demand for vegetation based carbon offsets, including commercial plantations and regeneration of native habitat, which if implemented well can reduce net greenhouse emissions and provide other environmental and natural resource benefits (such as improved water quality, more abundant native fish, or protection against rising saline water tables);

improve the prospects for programs aimed at the voluntary mitigation of direct agricultural emissions;

provide additional permit auction revenues that could be used to fund mitigation programs and research, an ambitious stewardship payment scheme to protect landscape function and environmental values in the face of climate change, and other worthwhile purposes.

In aggregate, the illustrative estimates of potential revenues from different opportunities suggest that carbon prices around $50/t CO2e could generate ten times more revenue for rural businesses and communities than prices around $25/t CO2e, as shown in Figure 8 and Table ES1.

Against this, higher carbon prices may raise competitiveness issues by raising input costs unless addressed or offset by other policies. These impacts are estimated to be very small (less than 3% by 2025) with the initial exclusion of direct agricultural emissions from emissions trading. Higher carbon prices may also increase the risk of more intrusive policy mechanisms to promote mitigation if a voluntary approach does not deliver effective abatement.



Figure 8 Net new income or profit for rural communities at different carbon prices, 2020-2025 (A$2005 millions)

0

200

400

600

800

1000

1200

1400

$20/t CO2e $50/t CO2e $65/t CO2e

Vegetation offsets - net profits

Wind power royalties

Government support forreducing direct emisisonsIncreased profitability (ACG)

Source: Table ES1.

(2) Careful policy design is needed to ensure emissions trading enhances agricultural competitiveness

Emissions trading is expected to increase energy prices and may raise total farm input costs by up to 3% by 2025, notwithstanding that direct agricultural emissions are initially excluded from the scheme. Increased costs of this magnitude could be easily offset by benefits from other policy actions, such as increased support for adaptation to climate variability, the co-benefits of abatement policies (such as meat production gains associated with reductions in methane emissions from livestock), or reductions in business taxes funded by the proceeds of emissions permit auctions. Assessing the magnitude of net competitiveness impacts and engaging policy makers on this issue is a priority.

Over the longer term, the inclusion of direct agricultural emissions in an emissions trading scheme would have more impacts on competitiveness if implemented in advance of similar measures by our major competitors. It is not clear, however, that free permit allocation would be an efficient mechanism for addressing this issue given the need to engage with large numbers of farm enterprises engaged in export activity. Strong engagement by agricultural producers and peak groups in the development of emissions reductions options and active emissions management will be important for enhancing to the future competitiveness of Australian agriculture and positioning the sector to influence the development of policy in this area.

(3) Clear policy signals are required to mobilise investment and activity, and deliver benefits for Australia

Good decision making and risk management in rural Australia requires clear policy signals from government, through progressively more detailed policy announcements and guidance. Rural businesses and communities have much to offer Australia as emissions trading and other policies to address climate change are introduced. Most



of these contributions involve investment and sustained action, and so will only be fully mobilised as policy settings are clarified.

(4) A collaborative approach to detailed policy development will yield the best results for Australia, and Australia’s rural businesses and communities

A collaborative and consultative approach to detailed policy development will yield the best outcomes for Australia, and for Australia’s rural businesses and communities. The deployment of renewable energy, development of effective policies to support abatement of agricultural emissions, implementation of vegetation offsets and accreditation arrangements, and realising the potential of stewardship payments all involve a host of judgements that can only be robust if they are informed by practical on ground knowledge. Rushing to implement partial or prescriptive policies can create long term problems. In the words of the Prime Ministerial Task Group on Emissions Trading:106

“The agricultural sector should be engaged to develop realistic options.”


APPENDIX A



APPENDIX A


Appendix A: Estimating potential supply of wind and bio-electricity

Table A1 reports analysis by CSIRO of the potential supply of electricity from wind and biomass at different carbon prices, accounting for the underlying resource base (wind speed and reliability for wind power), costs, and distance to the grid. These estimates do not take account of intermittency or the competitiveness of wind against other energy sources, and suggest a total potential supply around three times larger than the estimated share of wind in the Clean Energy Futures report (Saddler et al 2004).

Table A1 Estimates of potential supply of wind at different carbon prices, without accounting for intermittency

Potential electricity supply (a)

Carbon price: $50/t CO2e $65/t CO2e $80/t CO2e

GWh/year Share of projected

demand (b) GWh/year GWh/year

NSW and ACT 18,793 17-22% 254,850 868,536

Northern Territory 1,617 37-47% 40,409 67,223

Queensland 6,142 8-10% 149,737 462,239

SA and Victoria 66,334 >82% 425,890 1,201,969

Tasmania .. .. 8,531 107,579

Western Australia 83,371 >200% 327,317 550,601

Australia 176,257 >50% 1,196,742 3,258,147 Notes: Values are A$2005. (a) Potential supply not taking account of intermittency issues; (b) Assumes national annual electricity demand of 275-350 GWh; .. very small;

Table A2 reports previously published estimates of total bio-electricity supply, without taking account of production costs, from a range of sources. The costs, compeitiveness, and technology potentials of bio-electricity and biofuels are uncertain. High carbon prices would be likely to trigger a major increase in forestry plantations, which would result in a comparable increase in the plantation residue resource available for bio-electricity and biofuels. Specific impacts would depend on the detil of the policy context, however. Technology advances in the use of wood and lignocellulosic resources for energy production are also difficult to judge. Substantial research is currently in train on these issues in Australia and around the world.

Table A2 Estimates of Australian bio-electricity potential by resource

Resource Lower bound estimate GWh/year

Best estimate

GWh/year (a)

Sawlogs, pulpwoods and wood processing wastes 14,000 29,300

Plantation residues 1,700 3,100

Native forest residues and thinning 2,400 8,100

Potential mallee eucalypt crops 2,000 18,000

Potential future hardwood plantations 2,000 6,000

Total 22,100 64,500 Notes: (a) Upper bound estimates generally three or more times the best estimate. Source: Table 4-3, O’Connell et al 2007. Biofuels in Australia: issues and prospects. RIRDC publication 071/07

Separate estimates were also undertaken for this report to gauge the sensitivity of a specific source of bio-electricity to different carbon prices, based on short rotation


APPENDIX A


eucalypt forestry. This analysis suggested that this resource would only become profitable at a carbon price of around $55/t CO2e (implying zero supply at $50/t CO2e), with production rising strongly with price so that projected supply at $80/t CO2e would be 140% more than the supply at $65/t CO2e. This supply response is broadly similar to that for wind shown above, with supply at $50/t CO2e of around 15% of the supply at $65/t CO2e, rising by around 170% at $80/t CO2e.

Overview of method for new estimates

The approach used for the estimates provided in Table A1 estimates the physically feasible potential supply of wind to relevant state electricity grid systems, and the associated marginal cost of supply. The costs reflect current circumstances and cover activities associated with capturing or gaining access to each energy resource. They make no allowance for changes associated with learning from experience (IEA/OECD, 2000), resource depletion, dynamic changes in prices associated with competition for inputs or other factors, or demand side limits that might arise from large market shares for renewable energies.

This allows a marginal cost curve to be estimated for each state as a function of increasing cumulative supply of wind and bio-electricity. The ordering of the supply curve assumes that lower cost production areas are used first, resulting in a monotonically increasing cost curve. Key steps in the analysis for each energy source include:

defining an appropriate unit of analysis;

determining the energy output from each unit over the defined extent of the resource;

determining the fixed and variable (i.e. initial investment and periodic operating and maintenance) costs of production for each unit over the extent of the resource;

using the above, with an appropriate project life and discount rate, to determine the cost of energy production from each unit in $ / kWh;

sorting the units according to the cost of energy production, and plotting the results as a function of the cumulative quantity of energy available at each cost.

The data and assumptions for each renewable energy resource are provided below. A discount rate of 8% per year has been assumed throughout.

Estimating the marginal cost curve for wind power

The marginal costing of wind power takes account of the extent of the wind resource, its location with respect to the high voltage transmission grid, remoteness, and current land use. Key data and assumptions are set out in Table A3.

Economies of scale in wind power are associated with the power output of turbines (cost reductions have been due mainly to size increases) and the size of wind farms (allowing common costs to be spread over the output of a larger number of turbines). These estimates are based on a single turbine size – 2MW. The size of wind farms is discussed in Table A3.

Site location is a key cost determinant. Clearly high wind speed sites are desirable, but remoteness adds significantly to the costs of equipment transport, road construction, grid connection and continuing maintenance. The GIS analysis, which locates the wind resource with respect to ports, population centres and the road and grid networks, allows the fixed, variable and unit costs of wind energy production to be estimated for each square kilometre.


APPENDIX A


Table A3 Key data and assumptions used in estimating the marginal costs of wind power

Issue Approach

Wind resource

Wind speed data in GIS format were obtained from Mills (2001). The data consist of estimates of annual average wind speed at 70 meters above the surface for the whole of the Australian continent. The resolution allows the unit of analysis to be defined as 1 km2 of land area.

Access to grid

Information about the location of the high voltage transmission grid is based on the Geoscience Australia GEODATA TOPO 250K Series 2 digital maps which have a layer for powerlines over 110kV. Gaps in these data were filled in by referring to the wall map version of the ESAA "Australian Electricity Supply System Map 2003".

Land tenure

Land tenure data were obtained from Geoscience Australia. Each of the 17 tenure classes was classified according to its suitability for wind farm development.

Energy output

The annual energy output can be calculated from the technical properties of the wind turbine and the distribution of the wind speeds it experiences. A Raleigh distribution is assumed for the wind speeds, with a mean value for each square kilometre provided by the GIS data. The number of wind turbines per unit area is limited by the need to avoid excessive interference with the air flow among turbines, and by the fact that topography and other issues reduce the area of otherwise suitable land that can be used. Interference among wind turbines increases with size, so that the advantage of larger turbines is reduced by their need for greater separation. In this work, the combination of these factors results in 3 wind turbines per square kilometre, and this determines the energy output from this area.

Costs The main fixed (initial investment) costs are for: purchase of wind turbines; transport of wind turbines and installation plant to site; site preparation and wind turbine installation; road construction; grid connection; and project design and management. Variable (annual operating and maintenance) costs cover: general maintenance (including spares); grid maintenance; travel; and general management.

Reporting unit

Costs and energy output are reported for each statistical division, as defined by the ABS.

This approach produces upper bound cost estimates (that is, estimates of the highest likely price for each unit of analysis). In practice, wind farms can spread fixed or common costs over much greater output. However, estimating these economies of scale is complex, requires wind farm locations and sizes to be specified before their costs are known. An approximate method is used in which some of the analysis is done in a more aggregate way at statistical division level. These approximations provide lower bound cost estimates.

Estimating a marginal cost curve for one bio-electricity resource

The exploration of the supply response of bioelectricity focused on one type of resource, including the cost of:

establishing and managing dedicated plantations growing short rotation woody crops (coppiced eucalypt);

harvesting and transport to processing plants (within the same statistical division); and


APPENDIX A


electricity generation (boiler and steam turbine) for input to the grid.

The assessment is broadly based on case studies and process information in Stucley et al. (2004) – extended to the whole of Australia – informed by Hoogwijk (2004) and Houlder et al (1999). Key data and assumptions are set out in Table A4. The total quantity of projected electricity supply is significantly smaller than found in more recent work, shown in Table A2, and so detailed results are not reported.

Table A4 Key data and assumptions used in estimating the marginal costs of bio-electricity

Issue Approach

Biomass production

Biomass production and costs are based on Chapter 13 of Stucley et al. (2004). Total production and costs are estimated for each land type in each statistical division. Total production is the product of yield and land area. Unit costs of biomass production on each land type in each statistical division are obtained by discounting these costs over the life of the project in the usual way. The fixed (initial investment) costs include: land preparation; construction of access roads, storage areas and loading points; fencing; and purchase of seedlings. Variable (annual operating and maintenance) costs cover: general maintenance; purchase and application of fertiliser and pesticides; and rent (identified with the opportunity cost of the land in the best alternative use).

Harvesting and transport

Harvesting and transport costs are based on Chapter 14 of Stucley et al. (2004). Harvesting and transport equipment are specified in terms of their capacities, and their costs in terms of hourly rates that include labour, fuel, maintenance and depreciation. The description of the harvesting and transport operations determines the times for which the various equipment types are required and therefore the total cost. This cost is attributed to the biomass handled, and contributes to the overall unit cost of biomass delivered to processing plants.

Bio-electricity generation

Bio-electricity generation costs are based on information in Chapters 10 & 15 of Stucley et al. (2004). Plant size is determined for each land type in each statistical division by the biomass available, up to a maximum of 200MWe, above which more than one plant may be required. The fixed (initial investment) costs cover plant construction and establishment, and are based on a reference plant size with an allowance for economies of scale. Variable (annual operating and maintenance) costs cover labour, components proportional to plant capital costs, and the costs of biomass, made up of production, harvesting and transport costs. Grid connection is an important issue for bio-electricity generating plants. For these estimates, the biomass catchments are limited to the area within 50 km of the grid. As this distance is comparable with the transport distances estimated above, generating plants can be located close to the grid, and therefore avoid substantial grid connection costs.

The most important variable in harvesting and transport is transport distance. This is determined by the catchment area from which biomass is provided to processing plants and therefore depends on the type and capacity of the plants. Assuming biomass production on 20% of the area within a roughly circular catchment, this leads to average (one way) transport distances of about 100 km. Electricity generating


APPENDIX A


plants are assumed to have a maximum capacity of 200 MWe for which they require about 2.8 Mt of biomass per year, implying average transport distances of about 60 km. Actual transport distances may be lower, as not all plants are of maximum size.

The unit of analysis is the statistical division, divided into cropland, pasture, and other land uses. Estimates of biomass yields and opportunity costs on the different land types in each statistical division are broadly informed by the agricultural, forestry and plantation literature. The approach could also be extended to include ethanol production (by the lignocellulose pathway) for use as a transport fuel.

References

Hoogwijk, M. (2004) On the global and regional potential of renewable energy sources. Ph.D. Thesis, University of Utrecht

Houlder. D., Hutchinson, M., Nix, H. and McMahon, J. (1999) ANUCLIM Version 5.0: User Guide. Centre for Resource and Environmental Studies, Canberra.

IEA/OECD (2000) Experience curves for energy technology policy. Paris

Mills, D. (2001) Assessing the Potential Contribution of Renewable Energy to Electricity Supply in Australia - A Study of Renewable Energy Resources with a Particular Focus upon Domestic Rooftop Photovoltaics, Domestic Solar Hot Water and Commercial Wind Energy. Ph.D. Thesis, University of Queensland.

Stucley, C.R., Schuck, S.M., Sims, R.E.H., Larsen, P.L., Turvey, N.D. and Marino, B.E. (2004) Biomass energy production in Australia: Status, costs and opportunities for major technologies. RIRDC Publication No. 04/031, RIRDC Project No. EPL-1A


APPENDIX B


Appendix B Abatement policies for agriculture

Box 7.1 from the Report of the Task Group on Emissions Trading, 2007, page 108

“The scope for implementing alternative abatement policies to agricultural emissions appears limited in the short term. Many of the factors that suggest initial exclusion of the agricultural sector from an emissions trading scheme also suggest that a carbon tax is also currently impractical – that is, the lack of reliable measurement methodologies at the farm level and the complexity and cost of verifying emissions.

The scope for new cost-effective regulation also appears to be limited. Land clearing – one of the key sources of emissions from the sector – has already been regulated in most states to achieve both improved natural resource management and greenhouse gas mitigation. There are few obvious additional regulatory options available.

Proposals to cover only a subset of agricultural activities with alternative price or regulatory measures (say because practical measurement issues are resolved earlier) need to be carefully considered, given the potential for economic distortions to be introduced between related activities in the sector (for example, between intensive and extensive livestock, or between livestock and cropping). On the other hand, different agricultural activities and products have very different carbon profiles. There may be capacity for significant abatement in response to policy measures. The agricultural sector should be engaged to develop realistic options.

The main focus for the agricultural sector at this stage in emissions trading is to increase its capacity to achieve low-cost abatement, initially via the provision of offsets. This suggests the research effort should be enhanced to develop greater understanding of practical abatement opportunities for the sector, and to improve enterprise measurement of agricultural emissions. Announcing the intention to include agriculture within the scheme on a defined timetable would provide an important incentive for research and development activities and their piloting at farm level. Early results from such efforts (before application of a price signal) would produce returns to the sector in the form of greater opportunities for the sale of offsets into the sectors covered by an emissions trading scheme.”


APPENDIX C


Appendix C: Estimating potential supply of vegetation based offsets

The estimates of potential supply of sequestration offsets focus on an illustrative scenario involving planting existing sown pasture or cropland to trees. The area planted is 150,000 hectares per year for 15 years, resulting in a total new plantation area of 2.25 million hectares. This is equivalent to 6% of Australia’s sown pasture land. The planting rate is slightly more than double the average establishment rate of 70,000 hectares of plantation forest over the last decade, which peaked in 2002 at 140,000 hectares established (NFI 2007). Trees are assumed to be planted in each statistical division in proportion to the area of pasture. Sequestration estimate is based on plantations accumulating carbon evenly from year six to year 40, with the rate of accumulation varied between statistical divisions in proportion to estimates of pasture productivity derived from NLWRA (Walcott 2001).

This results in average carbon dioxide sequestration across all statistical divisions of 147 t-CO2 per hectare by 20 years after planting. Sequestration rates for each statistical division were derived by extrapolating an analysis by Harper et al. (2007), who estimate that the maximum potential above ground carbon sink 20 years after establishment of natural vegetation on 16.7 Mha of cleared agricultural land in Western Australia was 2091 Mt CO2-e. These rates of sequestration are broadly consistent with AGO National Carbon Accounting Toolbox and Kirschbaum (2000). Harper et al (2007) estimated that using managed commercial forestry species instead of native revegetation could yield rates of sequestration two to four times higher than native vegetation, as well as providing returns from harvested biomass (such as from forest products or niche bio-energy).

The potential gross revenues reported in Table 5 are based on the annual average sequestration over years 15 to 20. These are equivalent to annual gross returns per hectare of $163 and $408 (for the two carbon prices) in this period, averaged over the country. The returns in the period compare favourably with those for sheep and beef production of about $100 to $200 for the high rainfall zone (Bryan and Marvanek 2004). This overstates the attractiveness of participating in sequestration, however, due to the low or negative returns over the previous 15 years.

After 40 years a total of 657 Mt CO2-e would have been sequestered from the same investment yielding total gross revenues in excess of $12b and $30b for the two carbon prices over this period. This calculation of ‘additional revenues available from carbon offsets’ assumes average net returns to farmers are zero at $20/ tCO2e, and so the net gain to farmers at $50/t CO2e is the difference between the gross revenue potential at $20 and $50/t CO2e. The average additional income of $180 per hectare per year is based on estimated additional revenue of $245 in years 15 to 20 at a carbon price of $50/t CO2e, and takes account of the profile of carbon revenues over the 40 period.

References Bryan, B. and Marvanek, S. (2004) Quantifying and valuing land use change for Integrated Catchment Management evaluation in the Murray-Darling Basin 1996/97 – 2000/01. Report to the Murray-Darling Basin Commission. CSIRO Land and Water.

Harper et al 2007. The potential of greenhouse sinks to underwrite improved land management. Ecological Engineering 29, 329-341.

Kirschbaum, M.U.F. (2000) What contribution can tree plantations make towards meeting Australia's commitments under the Kyoto Protocol? Environmental Science and Policy 3, 83-90.

NFI (National forest inventory) (2007) Australia’s Forest Facts at a Glance 2007, Bureau of Rural Sciences, Department of Agriculture Forestry and Fisheries.

Walcott, J. (2001) Landuse Change, Productivity & Development. Final Report of Theme 5.1 to the National Land & Water Resources Audit. August 2001


APPENDIX D


Appendix D: Estimating potential supply of voluntary stewardship services and payments

The method used to estimate the outcomes and costs of a comprehensive national stewardship program presented in Table 6 is based on spatially explicit conservation priority setting (Margules and Pressey 2000), taking account of spatial patterns of biodiversity and agricultural profitability. The approach uses an optimisation algorithm to select sets of land parcels that achieve predetermined biodiversity targets at a minimal cost. The targets represent a comprehensive range of biodiversity data: vegetation types, environmental domains and species distributions. These targets are treated as the constraint; hence there is no budget constraint. Land parcels are allocated an opportunity cost based on forgone agricultural production, and this information is used to estimate the total cost of achieving the desired conservation objective. Because of inherent limitations in the data used for this analysis, total payments are reported as a range, reflecting the importance of how stewardship payments are implemented in practice.

Detailed description

The method uses the conservation planning tool Marxan (Possingham et al 2000), and employs a simulated annealing algorithm to select priority land parcels to achieve a specified biodiversity target. The analysis uses subcatchments to divide Australia into over 83,000 candidate priority areas (ave size = 50 km2 and 800 km2 in the intensive and extensive land-use zones, respectively, Stein 2006), with costs and biodiversity features assigned to each.

The analysis builds on Carwardine et al. (2006) and Klein et al. (2007), incorporating attention to cost effectiveness of representing and dynamic aspects of biodiversity (or just say ‘ecological processes’), but using stewardship costs based on agricultural productivity rather than land acquisition costs based on average land values (the focus of Klein 2007 which is relevant when the conservation action is to purchase land). It also differs from these previous two studies in that it targets conservation of 10% of pre-1700 biodiversity features, and reports estimated total stewardship payments (rather than only reporting relative acquisition and stewardship costs).

Stewardship costs are represented by a data layer containing estimated agricultural profitability of land suitable for conservation (including land with native vegetation, and excluding land that is completely cleared).

The assessed conservation values of each area takes account of both static and dynamic aspects of biodiversity. Static biodiversity elements are represented by major vegetation types, the distribution of birds and threatened species, and environmental domains (based on variables including temperature, precipitation, slope, and drainage direction). The data on biodiversity features utilised in the analysis includes 1,763 unique vegetation types (vegetation subgroup/bioregion combinations), 563 bird species, 1,222 species of national significance, and 151 environmental domains (see Carwardine et al 2006). Dynamic aspects of biodiversity are represented by representing 10% of areas identified as important for ecological and evolutionary refugia in arid and semi-arid regions (Klein et al 2007). These are areas of high regular herbage production and areas of geographic consistency over long-term climatic changes (James et al. 1995).

Existing protected areas (of IUCN status I-IV) are automatically selected, but are not treated as receiving stewardship payments. Land under indigenous tenure is treated as eligible for stewardship payments on the same basis as private land.

Attention to heterogeneous costs in conservation planning has been shown to achieve the same predicted conservation outcome at 30% to 55% of the cost implied by approaches that do not take account of costs when selecting land parcels, while only increasing the total area by 4% to 5% (Ando et al 1998, Stewart and Possingham


APPENDIX D


2005, Carwardine et al 2006). Despite this, most analyses still use area as a cost surrogate (Naidoo et al. 2006)

Attention to ecological and evolutionary processes in this type of conservation planning is relatively novel (Cowling and Pressey 2001, Rouget et al 2006). Previous work suggests this approach results in selection of slightly larger total land area, but appears to capture improved biodiversity outcomes. The use of sub-catchments as candidate priority areas, rather than a grid, improves the functional integrity of catchment scale processes in protected areas (Pressey et al. 2003). Approaches of this kind are expected to result in the selection of areas that would be more likely to maintain and generate biodiversity (Cowling et al 1999), and so are considered a more reliable guide to the design and costs of a new national stewardship program

References

Ando, A., L. Camm, S. Polasky, and A. Solow. 1998. Species distributions, land values and efficient conservation. Science 279:2126-2128.

Carwardine, J., K. Wilson, M. Watts, A. Etter, L. Tremblay-Boyer, S. Hajkowicz and H.P. Possingham, 2006, Where do we act to get the biggest conservation bang for our buck? A systematic spatial prioritisation approach for Australia. University of Queensland, Brisbane.

Cowling, R. M., and R. L. Pressey. 2001, Rapid plant diversification: Planning for an evolutionary future, Proceedings of the National Academy of Sciences of the United States of America 98:5452-5457

Cowling, R. M., R. L. Pressey, A. T. Lombard, P. G. Desmet, and A. G. Ellis. 1999. ‘From representation to persistence: Requirements for a sustainable system of conservation areas in the species-rich Mediterranean-climate desert of southern Africa’, Diversity and Distributions 5:51-71.

C. Klein, K. Wilson, M. Watts, J. Stein, S. Berry, J. Carwardine, M. Stafford Smith, B. Mackey, H. Possingham, 2007, Incorporating Ecological and Evolutionary Processes into Continental Scale Conservation Planning. University of Queensland, Brisbane.

James, C., J. Landsberg, and S. Morton. 1995. Ecological functioning in arid Australia and research to assist conservation of biodiversity. Pacific Conservation Biology 2:126-142.

Margules, C. R. and R. L. Pressey. 2000. Systematic conservation planning. Nature 405:243-253.

Naidoo, R., Balmford, A., Ferraro, P. J., Polasky, S., Ricketts, T. H. & Rouget, M. 2006. Integrating economic costs into conservation planning Trends in Ecology and Evolution 21(12):681-687.

Possingham, H. P., I. R. Ball, and S. Andelman. 2000. Mathematical methods for identifying representative reserve networks, in S. Ferson and M. Burgman (editors), Quantitative methods for conservation biology. Springer-Verlag, New York, pp.291-305.

Pressey, R. L., R. M. Cowling, and M. Rouget. 2003. Formulating conservation targets for biodiversity pattern and process in the Cape Floristic Region, South Africa. Biological Conservation 112:99-127.

Rouget, M., R.M. Cowling, A.T. Lombard, A.T. Knight, and I.H.K. Graham, 2006, ‘Designing large-scale conservation corridors for pattern and process’, Conservation Biology 20:549-561.

Stein, J. 2006. A continental landscape framework for systematic conservation planning for Australian rivers and streams. Australian National University, Canberra.

Stewart R.R. and H.P. Possingham. 2005. Efficiency, costs and trade-offs in marine reserve system design. Environmental Modelling and Assessment, 10:203-213.


REFERENCES AND ENDNOTES


References and Endnotes

1 National Land and Water Resources Audit (NLWRA), 2001, Australian Agricultural Assessment Report, National Land and Water Resources Audit, Commonwealth of Australia, Canberra 2 B.L. Preston and R.N. Jones, R.N., 2006. Climate Change Impacts on Australia and the Benefits of Early Action to Reduce Global Greenhouse Emissions. Consultancy Report for the Australian Business Roundtable on Climate Change. CSIRO Marine and Atmospheric Research, Melbourne. 3 Khan S., 2006, Managing Climate Risks in the Driest Continent: Options for Water Policy and Irrigation Management. Keynote paper presented at the Triennial Maize Conference at Griffith NSW, 21-23 February 2006. 4 NFF Media Release, 2006, Farming community echoes climate change call to action (6 December 2006 < http://www.nff.org.au/read/2432052795.html> <http://www.nff.org.au/policy/nrm.html>; NFF Media Release, 2007, Climate change threat must be tackled ‘head on’ (5 February 2007) <http://www.nff.org.au/read/2433921808.html> 5 Figures for direct and indirect emissions, including in relation to non-export production. AGO data reported in PM task Group 6 CSIRO, 2007, CSIRO Submission to the Prime Minister’s Task Group on Emission Trading: Response to Issues Paper. CSIRO, Canberra 7 ABARE, 2007, ‘Modelling commissioned from ABARE’, Appendix H.1 in Prime Ministerial Task Group on Emissions Trading, 2007, Report of the Task Group on Emissions Trading, Department of Prime Minister and Cabinet, Canberra 8 Allen Consulting Group, 2006a, Deep Cuts in Greenhouse Emissions: Economics, Social and Environmental Impacts for Australia. Report to the Business Roundtable on Climate Change, The Allen Consulting Group, Melbourne. 9 ABRCC (Australian Business Roundtable on Climate Change), 2006, The Business Case for Early Action, ABRCC < http://www.businessroundtable.com.au/index.html> 10 Prime Ministerial Task Group on Emissions Trading, 2007, Report of the Task Group on Emissions Trading, Department of Prime Minister and Cabinet, Canberra (page 6) 11 Allen Consulting Group, 2006b, Emissions Trading and the Land: Issues and implications for agriculture. Report to the National Farmers’ Federation. ACG, Melbourne (pages 43-44 and Table 4.1) 12 Keogh, M., 2007, The New Challenge for Australian Agriculture: How do you muster a paddock of carbon? Australian Farm Institute, Surry Hills 13 Australian Government, 2007, Australia’s Climate Change Policy: Our economy, our environment, our future. Department of Prime Minister and Cabinet, Canberra. 14 Prime Ministerial Task Group on Emissions Trading, 2007, op cit, pages 106-107 15 Australian Government, 2007, op cit, pages vii and 32 16 Australian Government, 2007, op cit, page 32 17 Rudd, K., 2007, An Action Agenda for Climate Change. Annual Fraser Lecture, Belconnen Labour Club, Canberra, 30 May 2007; Rudd, K., and K. O’Brien, 2007, Federal Labour’s Approach to Agriculture and Climate Change. Media Statement, 13 June 2007. 18 National Emissions Trading Taskforce, 2006, Possible Design for a National Greenhouse Gas Emissions Trading Scheme. Discussion paper prepared by the




National Emissions Trading Taskforce, August 2006; National Emissions Trading Taskforce, 2007, Change to NETT Terms of Reference, July 2007. 19 The international literature typically suggests that avoiding dangerous levels of climate change would involve high income countries like Australia reducing emissions by 60-90% as a group. CSIRO, 2007, op cit 20 Intergovernmental Panel on Climate Change Working Group Three (IPCC WG3), 2007, Climate Change 2007: Mitigation of Climate Change – Summary for Policymakers, Assessment Report No.4, IPCC / WMO / UNEP, Bangkok, May 2007 21 REGA (Renewable Energy Generators of Australia), 2007, Increasing Australia’s Low Emission Electricity Generation – An Analysis of Emissions Trading and a Complementary Measure: A Summary of Findings. REGA. 22 H. Saddler, M. Diesendorf, and R. Denniss, 2004, A Clean Energy Future for Australia: A Study by Energy Strategies for the Clean Energy Future Group, WWF Australia, Sydney 23 ABRCC 2006 op cit 24 REGA 2007 op cit 25 MMA (McLennan Magasnik Associates), 2006, Renewable Energy – A contribution to Australia’s Environmental and Economic Sustainability. Final report to Renewable Energy Generators Australia. MMA, Melbourne 26 Energy Futures Forum, 2006, The Heat is On: The future of energy in Australia. A report by the Energy Futures Forum, CSIRO, Canberra 27 REGA, 2007, op cit 28 H. Saddler et al, 2004, op sit 29 ABRCC, 2006 op cit 30 Australian Wind Energy Association, 2004, The Compatibility of Wind Farming with Traditional Farming In Australia, Report prepared for the Australian Greenhouse Office, Canberra. 31 Allen Consulting Group, 2001, Repairing the Country: Leveraging Private Investment. Report to the Business Leaders Roundtable, ACG, Melbourne. 32 D. O’Connell, D. Batten, M. O’Connor, B. May, J. Raison, B. Keating, T. Beer, A. Braid, V. Haritos, C. Begley, M. Poole, P. Poulton, S. Graham, M. Dunlop, T. Grant, P. Campbell, and D. Lamb, 2007, Biofuels in Australia – Issues and prospects. A report for the Rural Industries Research and Development Corporation, RIRDC publication 071/07, Canberra 33 Saddler et al,2004, op cit, pages 135-136 and Figure 9-1. 34 REGA, 2007, op cit, Table 1 35 Taurus Energy, 2005, Common Questions from Wind Farmers <taurusenergy.com.au>; Sustainable Energy Development Authority (no date) Planning and Building Wind Farms, SEDA Fact Sheet / NSW Department of Energy, Utilities and Sustainability, Sydney 36 D. Batten and D. O’Connell, 2007, Biofuels in Australia – economic and policy considerations. A report foe the Rural Industries Research and Development Corporation, RIRDC, Canberra (forthcoming) 37 D. Batten and D. O’Connell, 2007, op cit




38 OCED-FAO, 2007, OECD-FAO Agricultural Outlook 2007-2016, Organisation for Economic Co-operation and Development (OECD) and Food and Agriculture Organisation of the United Nations (FAO), Paris 39 CSIRO, BTRE and ABARE, 2003, Appropriateness of a 350 Million Litre Biofuels Target. Report to the Australian Government Department of Industry Tourism and Resources, Canberra. 40 D. Batten and D. O’Connell, 2007, op cit 41 D. Batten and D. O’Connell, 2007, op cit; CSIRO, BTRE and ABARE, 2003, op cit. 42 O’Connell et al, 2007, op cit 43 Prime Ministerial Task Group on Emissions Trading, 2007, op cit, page 38 (Table 2.2) 44 D. Rossiter, 2006, Update on Australia’s Mandated Renewable Energy Target, Presentation notes, Perth, 25 October 2006 45 CSIRO, 2007, op cit 46 The Climate Institute, 2007, Making the Switch: Australian Clean Energy Policies. Preliminary Research Report – May 2007. The Climate Institute, Sydney. 47 The Climate Institute, 2007, op cit 48 Prime Ministerial Task Group on Emissions Trading, 2007, op cit, page 30 49 AGO (Australian Greenhouse Office), 2007a, National Greenhouse Gas Inventory 2005: Accounting for the 108% Target, AGO, Canberra 50 Prime Ministerial Task Group on Emissions Trading, 2007, op cit 51 Keogh, M., 2007, op cit, page 27 52 Prime Ministerial Task Group on Emissions Trading, 2007, op cit, Table J.1, page 185 53 Keogh, M., 2007, op cit, pages 25-40 (Sections 7 and 8) 54 Keogh, 2007, op cit 55 Keogh, 2007, op cit 56 AGO, 2007a, op cit 57 AGO (Australian Greenhouse Office), 2007b, National Inventory by Economic Sector 2005, AGO, Canberra 58 AGO (Australian Greenhouse Office), 2006, NAGO Factors and Methods Workbook: For use in Australian Greenhouse emissions reporting, AGO, Canberra 59 ABARE (Australian Bureau of Agricultural and Resource Economics), 2006, Australian Energy Statistics – Australian Energy Update <www.abare.gov.au> 60 Keogh, 2007, op cit, pages 37 and 33 61 A separate but compounding consideration is that virtually all agricultural enterprises fall below the 25,000 t/CO2 emissions threshold for inclusion as liable entities in the emissions trading system, with the Prime Minister’s Task Group on Emissions Trading reporting that facilities above this threshold account for less than 1% of emissions from the sector. (Prime Ministerial Task Group on Emissions Trading, 2007, op cit, Table J.2, page 186) 62 D. Trewin and B. Fisher, 2000, Exports of agricultural production. Joint Statement by the Australian Statistician and the Director of the Australian Bureau of Resource Economics, 17 August 2000. ABS / ABARE, Canberra




63 ABARE data reported in Keogh, 2007, op cit, Figure 2 64 see AGO 2007b op cit 65 Prime Ministerial Task Group on Emissions Trading, 2007, op cit, Box 6.6, page 95 66 Unpublished data from S. Hatfield-Dodds and P. Adams, 2007, Beyond the Double Dividend: Modelling the impacts of achieving deep cuts in Australian greenhouse emissions. Paper presented at the Conference of the Australian Agricultural and Resource Economics Society, Queenstown, New Zealand, February 2007 67 Keogh, 2007, op cit, pages 25-39 68 S. Hatfield-Dodds, 2005, ‘When Should We Use Taxes to Address Environmental Issues? A Policy Framework and Practical Agenda for Australia’ in H. Ashiabor, K. Deketelaere, L. Kreiser and J. Milne (eds), Critical Issues in Environmental Taxation: International and Comparative Perspectives (Volume II), Richmond Law & Tax, USA 69 Notwithstanding the general view that agricultural emissions are unlikely to be directly included in emissions trading, it might be feasible to develop opt-in credit arrangements (or liabilities) for point source emissions from intensive agriculture, such as manure control or the capture and use of methane in piggeries and dairy operations. 70 Prime Ministerial Task Group on Emissions Trading, 2007, op cit, Box 7.1, page 108 (reproduced at Appendix B) 71 Allen Consulting Group, 2006b, op cit, page 46 72 Hatfield-Dodds and Adams, 2007, op cit 73 Prime Ministerial Task Group on Emissions Trading, 2007, op cit, page 109 74 Prime Ministerial Task Group on Emissions Trading, 2007, op cit, Box 7.1, page 108 (reproduced at Appendix B) 75 Keogh, 2007, op cit, page (iii) 76 S. Hatfield-Dodds, 2007, Policy issues in choosing forward commitments of emissions entitlements. A discussion paper prepared for the Prime Minister’s Emissions Trading Task Group. CSIRO Sustainable Ecosystems, Canberra. 77 M. Grubb and K. Neuhoff, 2006, ‘Allocation and competitiveness in the EU emissions trading scheme: policy overview’, Special Issue on emissions trading and competitiveness. Climate Policy 6(1) pp. 7-30. 78 J. Sijm, K. Neuhoff and Y. Chen, 2006, CO2 cost pass through and windfall profits in the power sector’, Special Issue on emissions trading and competitiveness. Climate Policy 6(1) pp. 49-72 79 Unpublished data from Hatfield-Dodds and Adams, 2007, op cit 80 A. Campbell, 2007, Options for Catchment Management Authorities in the carbon market. A report for Victorian Catchment Management Authorities. Triple Helix Consulting. 81 Campbell 2007 op cit 82 Australian Government, 2007, op cit, page 11 83 C. Downie, 2007, Carbon Offsets: Saviour or cop-out? Research Paper No.48, The Australia Institute, August 2007 84 Campbell 2007 op cit 85 Campbell, 2007, op cit, page 7




86 See the last paragraph in Appendix C. 87 Preston and Jones, 2006, op cit 88 N. Abel et al 2003 Natural Values: Exploring Options for Enhancing Ecosystem Services in the Goulbourn Broken Catchment, CSIRO Sustainable Ecosystems, Canberra 89 J. Bishop (2005) ‘Payments for ecosystem services: An example of sustainable globalisation?’, IUCN Regional Office for Europe Newsletter, Volume 7, International Union for the Conservation of Nature, Cambridge UK. 90 S. Hatfield-Dodds, 2006, ‘The Catchment Care Principle: A new equity principle for environmental policy, with advantages for efficiency and adaptive governance’, Ecological Economics 56 (3), 373-385 91 Wentworth Group, 2003, A New Model for Landscape Conservation in NSW: The Wentworth Group of Concerned Scientists report to Premier Carr, World Wide Fund for Nature, Sydney 92 Hatfield-Dodds,2006, op cit 93 National MBI Working Group (2005) National Market Based Instruments Pilot Program: Round One Interim Report, December 2005. National Action Plan on Salinity and Water <http://www.napswq.gov.au/mbi/pubs/interim-report.pdf> 94 USDA New Release, 2005, Johanns Lauds Voluntary Conservation on Private Lands. Release No. 0115.05 4 April 2005 <http://www.nrcs.usda.gov/programs/farmbill/2002/fbnews.html> 95 USDA New Release, 2007, USDA Proposes Market-Based Conservation <http://www.nrcs.usda.gov/news/> 96 European Commission, 2003, Agriculture and the Environment. Fact sheet, European Commission Director-General for Agriculture, Brussels <http://ec.europa.eu/agriculture/envir/index_en.htm> 97 Minister for Agriculture. Fisheries and Forestry Peter McGauran and Minister for Environment and Water Resources Malcolm Turnbull, ‘$50 million for Environmental Stewardship’ Join Media Release ENV08, 8 May 2007 98 S. Whitten, M. van Bueren and D. Collins (2004) ‘An overview of market-based instruments and environmental policy in Australia’ in S. Whitten, M. Carter and G. Stoneham (2004) Market-based tools for environmental management: Proceedings of the 6th annual AARES national symposium. A report for Joint Venture Agroforestry Program. RIRDC Publication No. 04/142 99 E. Comerford, 2007, Influences of bid prices in the (Queensland) Vegetation Incentives Program, Paper presented at the Conference of the Australian Agricultural and Resource Economics Society, Queenstown, New Zealand, February 2007 100 Allen Consulting Group, 2001, Repairing the Country: Leveraging Private Investment. Report to the Business Leaders Roundtable, ACG, Melbourne. 101 S. Hatfield-Dodds, C. Binning and B. Yvanovich, 2006, Farming Finance: Creating positive land use change with a natural resource management leverage fund. Final report for Market Based Instrument Pilot project 46. National Action Plan for Salinity and Water Quality, Canberra. 102 Hatfield-Dodds and Adams, 2007, op cit 103 Campbell, 2007, op cit, page 15 104 Hatfield-Dodds et al, 2006, op cit




105 Hatfield-Dodds et al, 2006, op cit 106 Prime Ministerial Task Group on Emissions Trading, 2007, op cit, Box 7.1, page 108 (reproduced in Appendix B)

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