OPINION
Any farmer or agricultural business owner putting their head in the sand about carbon farming will find out the hard way that dealing with this issue is a must, not an option.
Along with digitisation and automation of agriculture, carbon farming will be one of the hot topics I'm looking forward to discussing when the agricultural community comes together at evokeAg in South Australia next week.
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This issue will come with a sting in the tail somewhere down the track - probably sooner rather than later - given Australia's revised greenhouse gas reduction targets under the Labor federal government.
The good news is a lot of farmers are already active in the carbon farming space.
There are benefits not just for the environment but for the agricultural businesses who are taking action.
We should look at it as an opportunity, not an imposition.
What's carbon farming?
Before outlining where the opportunity lies, let's get across the acronyms and regulatory bodies who are overseeing carbon farming.
At its simplest, carbon farming is a set of agricultural practices implemented to increase the atmospheric carbon stored in soil, potentially mitigating the impact of climate change.
It's a requirement that carbon farming activities must be certified and must comply with an emissions reduction method as set out by the Clean Energy Regulator (CER), under the federal Emissions Reduction Fund (ERF).
Any approved carbon farming activity generates Australian Carbon Credits (ACCU).
This is a measurement in which one ACCU represents the avoidance or removal of one tonne of carbon dioxide equivalent greenhouse gas.
The CER administers a safeguard mechanism that requires high-emitting facilities and businesses to keep their emissions below a baseline emissions limit.
The couple of hundred entities in Australia who are currently emitting over 100,000 tonnes of CO2 each year must surrender prescribed carbon units to reduce their net emissions. These ACCUs can be used as offsets under the safeguard mechanism.
To generate and sell ACCUs, the ERF has certified a range of activities that can be implemented.
Organisations undertaking these activities can earn ACCUs to be traded and returned as a monetary value to them.
The CER has 14 approved agricultural methods that can reduce the amount of methane entering the atmosphere.
These range from soil organic sequestration methods (like tree planting), to irrigated cotton fertiliser management along with cattle, dairy and piggery emission reduction methods.
RSM has been working with clients who want to participate in the ERF.
They must apply to become a participant to register their project to receive ACCUs, outlining a forward abatement estimate on how many years they expect the project to run.
It's crucial to note that an application must be made before a carbon farming project starts: it cannot be retrospective.
ERF participants are obliged to report on their projects regularly and may need to include an audit report verifying the project's achievements.
Once a project starts generating ACCUs the participant will be paid at the agreed price and ACCUs are traded at auction through the regulator.
RSM is also increasingly working with landowners, and their agents, on offset reports required as part of CER and ACCU credit applications.
Liability is limited by a scheme approved under professional standards legislation
Starting point
First, you need to start benchmarking.
Many farming businesses are already taking steps to improve their carbon footprint (for example with soil improvement), but they lose the full benefit of doing this unless they are also benchmarking their farms and businesses.
You must have a clear idea of what your carbon footprint looks like now, so you can demonstrate improvements.
(This will also be required to access incentives, and in future will likely be required to access markets).
We're working with agri clients who want to get a baseline established - ie this is where we were in 2023 and this is how it's progressively improved over a period of time.
Otherwise, all that hard work put into improving your carbon footprint is not documented.
Farm businesses which start to understand their carbon footprint will get the full benefit of incentives available for those who are trying to improve their carbon exposure.
Beware of the whip
We need to watch for the carrots and beware of the whip.
There are significant economic benefits available to farmers undertaking carbon farming projects to improve their farming practices by increasing carbon storage and reducing their own emissions.
In addition to the previously mentioned key incentive programs, farmers can also get a first mover advantage so they don't fall foul of the whip when the carrot for carbon neutrality is no longer available.
What I mean by that is, in future access to export markets will likely require green credentials.
If you're not green/carbon neutral you will have issues accessing markets.
It is interesting that right now banks are offering discounted lending to borrowers with sustainable farming practices.
I think this will flip around in future.
Instead of a discount for sustainability, lenders will have an increased rate margin built in for those who are not carbon neutral.
Banks are trying to get green credentials just like everyone else, so they will be pricing their products according to where their customers sit in terms of carbon neutrality.
Rise to the challenge
For all businesses, not just agricultural, carbon reduction is a live issue and given the way the whole supply chain is integrated, the carbon footprint of the supply chain as a whole will be an essential for future access to local and export markets.
Agribusinesses need to establish their green credentials, sooner rather than later.
Our sector must be up for the challenge and realise the need to work on carbon farming. This will bring farm businesses the opportunity not only to help the environment but also to increase their earning potential and asset value.
- Ross Paterson is agribusiness national leader with professional services firm RSM Australia, based in WA where he advises on a range of issues including taxation, cash flow management and asset protection.
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