Tuesday, June 10, 2008


Canberra, 19 May 2008

1. Introduction
Agricultural emissions represent approximately 15 per cent of Australia’s total emissions. Agriculture is the dominant source of methane (primarily from livestock) and nitrous oxide (mainly from agricultural soils). Agricultural emissions are projected to increase to 93 Mt CO2-e in 2010 and 101 Mt CO2-e by 2020. Table 1 shows the emissions from agriculture as reported in Australia’s national (Kyoto) inventory for 2005.

While direct emissions from farming make up the bulk of emissions from agricultural sectors, these industries also produce emissions through energy use and land-use change.

2. Coverage

Agricultural emissions could be included within the scheme in one of three possible ways. Liability could be imposed:
• directly on farm businesses;
• indirectly, on ‘up stream’ inputs such as fertiliser and/or on ‘down stream’ food processors such as abattoirs; or
• via a hybrid of these approaches whereby the default point of liability would be up or down stream but farm businesses given the option of managing their emissions liabilities directly.

Consideration of the method of coverage of agricultural emissions involves judgment of the relative importance of two strongly competing coverage principles:
• The bulk of the sector’s emissions are produced by thousands of small farm businesses potentially making it costly and potentially inefficient to impose obligation on emissions at the entity level:
o Very few farm businesses would meet the minimum 25 kilotonne CO2-e threshold for reporting under the National Greenhouse and Energy Reporting Scheme, and indeed many of the emissions in the sector would be produced on entities with less than one kilotonne;
o This would suggest, with a certain fixed cost associated with entity compliance with the scheme (emissions estimation and permit management and the like), coverage of direct emissions in the agricultural sector would be orders of magnitude greater than those in other sectors (other things being equal); and
o Consideration of even low thresholds specific to the agricultural sector – which would be necessary to limit very excessive compliance costs – would necessarily bring some economic distortions given the competition
between farm businesses of different sizes throughout the sector;
• On the other hand, there is a relatively weak relationship between emissions at upstream and downstream points in the supply chain and direct farm emissions. That is, management action and enterprise specific characteristics can
significantly affect the actual emissions associated with production and input variables, such as meat or milk production or fertiliser consumption. This means that moving the point of liability away from the direct source of emission could reduce the efficiency of the carbon price signal, and potentially compromise the equity of the scheme (as broad emission defaults are applied).

3. Direct Obligation

Mitigation incentives

The scheme will be more equitable and efficient where emissions can be estimated accurately and cost effectively at the point of emissions because: the emissions liability matches the actual emissions at the site; and as a result there are more opportunities for individual entities to respond to the carbon price by changing their behaviour or
technology to reduce emissions.

Cost effectiveness

Compliance costs will include emissions estimation and reporting costs as well as those involved in holding, trading and acquitting emissions permits. There will be relatively fixed costs for all liable entities associated with establishing the necessary reporting systems, and with annual scheme obligations. Emissions estimation costs will vary
according to the number of covered activities undertaken on the farm, the complexity of estimation methods, and audit and record keeping requirements. There are around 130,000 enterprises in the land-based sector. These vary in scale from
‘hobby’ farms to large corporate operations. Table 2 shows indicative emissions by industry sub-sector and the approximate number of entities responsible for these.

Table 2 Agriculture Sector Profile (major industries)

Economic distortions

The number of liable entities in the scheme could be reduced by applying an emissions threshold to restrict liability to those entities that can be included practically and cost effectively. In this way, thresholds allow a balance to be struck between compliance costs and benefits of direct liability.

In the agriculture sector, thresholds would need to be set at a relatively low level to capture the majority of agricultural emissions. As an indicative example, covering about 80 per cent of direct emissions from the beef, sheep, dairy and wheat industries would require participation in the scheme of around 45,000 farm businesses.

Use of thresholds introduces the possibility of economic distortions between entities above and below the relevant threshold, because carbon costs are not imposed on below threshold entities. This could create incentives to change company structures.

4. Indirect liability
To achieve comprehensive coverage of all emitters (both large and small) where the costs of coverage are excessively high, an option is to cover emission sources indirectly. This could be achieved by requiring up or down stream entities, such as fertilizer distributors or food processors, to acquit scheme units for emissions from consumption of their products (upstream entities) or production of their inputs (downstream entities), using proxies of direct end use emissions. This is the approach that New Zealand has proposed for its emissions trading scheme.

Mitigation incentives

Provided that the link between the upstream activity and emissions is unbiased, from an economic perspective, incentives to reduce sectoral emissions will be present. However, as noted, these are likely to be more muted under an upstream approach. There is potential, though, to provide greater mitigation incentives through development of more differentiated emissions factors. Not all emissions sources could be captured via up stream and down stream activities. For example, breeding animals and animals slaughtered for on-farm consumption would not enter the supply chain and so could not be covered ‘downstream’.

Cost effectiveness

The costs of an indirect approach will depend on the number of liable entities, which in turn will depend on the number of covered emissions sources and the precise point of obligation. Overall costs would likely be significantly lower because there would be hundreds rather than thousands of liable entities. Development of an indirect approach to coverage would require identification of points of obligation that efficiently and comprehensively cover emissions from the sector.

Economic distortions

Indirect liability would avoid the problem of economic distortion between farms on either side of the emissions threshold because the up (or down) stream entities would supply to (or receive produce from) farms of all sizes.
It may be difficult to identify practical indirect points of liability for all emissions sources.
For example, breeding animals and animals slaughtered for on-farm consumption would not enter the supply chain and so could not be covered ‘downstream’.

5. Hybrid approach

A further option is for liability to be imposed indirectly (‘upstream’ and ‘downstream’) as a default option, but farm businesses given the option of reporting and managing their own emissions liabilities (accepting direct liability). This option could be a way of obtaining the advantages of both direct and indirect approaches.

The New Zealand Government is currently working with its agricultural sectors to explore the workability of such an approach.

Questions for stakeholders:

Stakeholders are invited to comment on the merits of each of the three approaches:

1. direct obligation;
2. indirect liability; and,
3. hybrid.

Stakeholders are also invited to offer suggestions, in relation to each option, on ways to:

- reduce the costs of scheme participation;
- cost effectively verify management practices that reduce emissions, such as timing of fertiliser
application; and
- maximise abatement incentives.




The Carbon Coalition welcomes the opportunity to contribute to the Department of Climate Change’s thinking on the shape of Australia’s Emissions Trading Scheme and acknowledges the Commonwealth Government’s proactive position on soil carbon.


The Carbon Coalition’s Mission is “To see soil carbon credits traded and farmers paid for what they grow.” Whether inside or outside the Emissions Trading Scheme, the Mission remains the same.


2a. Against Direct: The key factor in the debate about where primary producers should make their contribution to mitigating Climate Change is an attribute that seperates them from all other businesses in the economy: they cannot pass on the cost at the saleyards or the auction room. While energy or transport or manufacturing companies can manage their pricing (as price makers) primary producers are still largely price takers.

2b. For Direct: The complexities and costs associated with such a diverse collection of businesses is not a material barrier. These businesses are managed by the Tax Office in all their diversity. They submit BAS reports. The administrative costs are illusiory because existing templates can be extended to accommodate the new content.

2c. For Indirect: The price on carbon would have to be paid either by the input supplier or the processor. Either way the primary producer pays the price of the carbon in higher input costs or a lower price for produce (to account for the increase cost for the processor which would be passed on through to the consumer.) This equalising process is more equitable than the Direct model which penalises the producer who has no recourse.

2d. For Hybrid: This option provides the flexibility to separate the price-takers from the price-makers among producers. Growing numbers of producers are engaging in supply chain marketing, engaging directly with channel partners to build value-added brands.


3a. Direct participation in an Emissions Trading Scheme described in the Agenda Paper: Overarching Design Principles as a result of “coverage” involves exclusion from the abatement market as a supplier. Involvement in the offset mechanism can occur only while outside the scheme. However the Coalition’s understanding of the cap and trade mechanism includes the ability of the firm to trade the credits it can generate by reducing its emissions below the level required. The cost of participation in a Direct Obligation option can be reduced dramatically by giving producers access to the carbon offsets they can generate by growing soil carbon.


4a. The indiscriminant use of nitrogenous fertilisers is carbon retrograde. Text books acknowledge the problem. ‘The dominance of superphosphate and the ley farming of the times left a legacy of their own, in term of shallow-rooted pastures, increased soil acidity, new weed invasions and nutrient imbalanced in many soils.’ It burns up soil organic matter and takes calcium out of the soil. It can damage microbial communities and destroy their capacity to release natural sources of nitrogen. Contamination of aquifers, as in the USA, is a dangerous problem.

4b. Soil organic matter (SOM) can supply much of a farmer’s Nitrogen needs. “In cropping systems, as much as 50%-80% of the N can be supplied from SOM and nearly 100% of the N in native ecosystems,” writes Professor Charlie Rice in his book Soil Carbon Management. This percentage represents11-300kg N ha-1 for a crop . At $1500/tonne for nitrogen fertiliser, this transates into a value of $16.50-$450/ha/yr. Most N in soils comes from the air and is absorbed by micro-organisms associated with legume plants. N is fixed by legumes and stored in the soil in organic forms, to be broken down by other microbes – via two processes: mineralisation and nitrification, via which it is transformed into ammonium and nitrate.

4c. Former NSW Department of Agriculture agronomist Adam Wilson told The Land that the best way to build up a N bank is to add carbon to soils. Management that builds C also builds organic N because both processes rely upon interactions between rootmass and microbes. He recommends adding organic carbon via composts, green manures or planned grazing, avoiding highly alkaline fertilizers which burn up C and humus, minimum tillage, and a legume or pasture rotation.

4d. One way to limit use of artificial fertilisers and turn producers towards alternatives (composts, compost teas, strategic grazing, etc.) is to make it cost-prohibitive by factoring in an environmental levy so the full cost of the substance is paid by the user.

4c. The licensing of the use of artificial fertiliser due to its high greenhouse intensity would give the Government a means of regulating its use . (Ie. determining where and when and how much is used.) The Catchment Management Authorities can be used to audit application.


5a. The main area of uncertainty in the methane issue is not the production per animal or property. It is ascertaining accurately the stock numbers for the reporting period.

5b. There are 3 methods currently used to report stock numbers on a property: 1. Annual tax return 2. Rural Lands Protection Board Annual Report.. 3. NILS tagging for sale. They are likely to have different figures for each report, but an average might be useful.

5c. Numbers of “Killers” (beasts slaughtered for onfarm consumption) are negligible.

5d. Numbers of breeding stock are also not relevant because every animal eventually goes to the slaughterhouse. Saleyard records include age of animal.

5e. Remote sensing by satellite can verify stock numbers.


6a. Trials involving Carbon Farmers in all States are reporting levels of carbon sequestration higher than ever previously recorded. These trials are using combinations of carbon farming techniques never before studied by Government scientists because they were unaware of them. High carbon no till (pasture cropping) and ‘no kill’ cropping techniques combined with biological preparations and time controlled grazing management provide ideal growing conditions for deep-rooted native perennial pasture grasses which are prolific carbon manufacturers when aided by healthy soil microbial communities.

6b. Col Sies of “Winona’ Gulgong reported an increase in soil carbon intensity from 2% to 4% over 10 years (CSIRO scientists say this is impossible.) Dr Tim Wiley of WA Agriculture reports that perennial grasslands can sequester 5-to-10 tonne CO2e/ha/yr from trials around Geralton, WA. Dr Christine Jones of the Australian Soil Carbon Accreditation Scheme reports one of her trial properties – a broadacre wheat farmer near Clermont, QLD - “has more than three times the amount of carbon in the farmed soil than there is under the surrounding native vegetation (149 tonnes of carbon/ha under native vegetation versus 516 tonnes of carbon/ha under the crop). As a result, the soil is far more productive. The wheat crop yielded 4 tonnes per hectare of grain with 13.5 per cent protein this year – well above the district average,’ reports the CSIRO’s ECOS magazine.

6c. Dedicated “Carbon Farming” techniques are also recording faster growth in the more permanent humic carbon fractions than the labile and total carbon scores.

6d. For this reason the Carbon Coalition believes that the average farmer will be able to offset their liabilities from the soil carbon they can grow. Hence the most motivating abatement incentive would be the right to access the soil carbon we produce and to sell it.

6e. An hybrid system of inclusion/exclusion would offer carbon farmers the flexibility required to choose their own destiny. However the benefits accruing from major land management shifts across the entire continent would not be achieved if conventional farmers were given the opportunity to remain conventional.


The Carbon Coalition Against Global Warming was formed in February 2006 to ensure Australian farmers and graziers gain maximum benefit from trading in soil carbon credits. The Convenors of the Coalition have been regular speakers at gatherings of farmers and graziers across Australia. They led a fact-finding delegation to the USA on behalf of Australian farmers in 2006. While there they negotiated the first order for soil carbon credits from the Chicago Climate Exchange. They attended workshops, briefing sessions and meetings with members of 3 of President George W. Bush’s 7 ‘regional partnerships’ of states. They carried the flame to New Zealand and saw the Government call a tender for the design of a voluntary market in soil carbon. They discovered the gaps in the data sets used for the National Carbon Accounting System, upon which the belief that Australian soils cannot sequester carbon was based. They initiated a series of ‘soil science summits’ between scientists and farmers, that culminated in the world’s first Carbon Farming Expo & Conference in 2007. They have appeared as expert witnesses before the NSW Premier’s Greenhouse Advisory Panel, the NSW Parliamentary Standing Committee on Natural Resources & Climate Change, and the NSW Dept of Primary Industries Climate Risk Management Project. They succeeded in getting soil carbon on the Election Platform of the ALP for the 2007 Federal Election. When PM Rudd declared an inquiry into soil carbon after the election, Matthew Cawood, Science & Environment Editor with The Land wrote: The soil carbon issue ‘would be still largely invisible if it wasn’t for your efforts. You and Louisa have barnstormed this issue into national politics. That's as good as it gets.”

Michael & Louisa Kiely, Convenors, Carbon Coalition Against Global Warming: RMB 384 Uamby Road, Goolma NSW 2852 (02) 6374 0329 www.carboncoalition.com.au