Updated 21-11-09The weekend news reports suggested that Climate Change Minister Penny Wong “backflipped” by opening up the possibility of excluding agriculture from Carbon Pollution Reduction Scheme (CPRS).
My impression is that Senator Wong is not a woman who does backflips, even in the privacy of her own home. Agriculture might not be “in”, but by no means is it “out”, either.
Many people, including yours truly, can’t see how agriculture can operate within an emissions trading scheme, particularly if our international trading partners are not on board at the same time.
But sitting outside the CPRS will be no offsets gravy train; at worst, being “out” could squeeze farmers even harder between rising input costs and inadequate returns on outputs.
Agriculture is reputedly responsible for 16 per cent of the nation’s emissions. Excluding the agricultural sector from the CPRS means that other industries covered by the scheme will have to pick up that extra 16 per cent.
Only they won’t pick it up: if they are connected to agriculture, like the energy, transport, fertiliser and retail sectors, then chances are they will pass onto farmers not just the extra costs of the CPRS, but the “extra extra” costs that result from farmers not carrying their share of emissions reduction.
Farmers are pinning their hopes on their ability to generate carbon offsets from trees, soils and biofuels. A crucial piece of missing detail is whether those offsets will have full status within the CPRS, or only be tradeable on the voluntary market.
Right now, the voluntary versus “official” carbon markets is not a pretty picture.
The Chicago Climate Exchange (CCX) in the United States operates on the voluntary market, selling, among other things, soil carbon credits gained through minimum tillage or rotational grazing.
At the time of writing, an emitter can snap up a 2010 CCX Carbon Financial Instrument, equivalent to a tonne of soil-sequestered carbon, for US 10 cents (AUD 11 cents).
Across the Atlantic, the European Climate Exchange trades in official EU Allowances (EUA) (also equivalent to one tonne CO2) generated under the EU Emissions Trading Scheme. Current trading price: 14.46 Euros (AUD$23.43).
In short, having costs go up in line with official CPRS prices but only being able to offset them on voluntary market prices may do little for farmers’ terms of trade.
(These figures are only illustrative. If Australian agriculture develops a rigorous voluntary market for offsets—and it better, if it goes down this route—then voluntary offset prices will be much higher. But they are unlikely to be ever as high as the CPRS market price.)
Then there is the whole point of the CPRS: to encourage industries to innovate away from greenhouse gas-intensive practices.
By sitting outside the CPRS, the farm sector will not have direct incentives to innovate in areas like reduction of fossil fuel use. There will be incentives, but they will not be those driving the rest of the economy. In avoiding pain, agriculture may lose some gain.
Meanwhile, most of the world’s industries and a large proportion of its investment money is heading toward low-carbon technologies at a canter. “Peak oil” is forecast to occur in the next 20 years, if not sooner.
Agriculture needs to be engaged with the vigour and opportunity of these developments. Being “in” guarantees engagement. What happens if ag is out?
A lot of the devilish detail remains to be sorted. When it is, though, it’s unlikely that Penny Wong will be seen to have backflipped on agriculture. Possibly quite the opposite.
UPDATE : Bryan Clark, Industry Development manager for the Grain Growers Association and its resident emissions trading guru, takes exception to my over-simplifying the issue. He notes that:
- the CCX is based on both sides of the trade being voluntary, with no scope for selling CCX into a compliance market. The EU is a total compliance market, but with no scope for trading ag offsets. It's an apples-with-oranges comparison, Bryan suggests. Better to consider a future Australian agricultural offset system in light of the Canadian system, which is currently fixed at CAN$15 a tonne.
- Saying that excluding ag and its 16 per cent of emissions from the CPRS will mean an extra 16 per cent for the rest of industry to pick up is "totally wrong", he says. "The Government wants to "cover" 75 per cent of the Aust economy with a cap and trade scheme, the rest they will deal with in other ways. Leaving ag as uncovered means that 84 per cent of the economy is covered. Target achieved."
"For some reason the media don't seem to be able to grasp that there is more than one way to skin a cat. The ETS is but one tool in the toolbox within the wider CPRS and trying to have everything fit into a one size fits all is fraught with danger."
No argument from me on that.
But there is still that 16 per cent of floating emissions to skin, somehow. Which is the point of this post: while ag might be "out" of the CPRS, it's not out of emissions reduction efforts.
Whether that means pain or opportunity is partly up to policy makers-and-shapers like Bryan, but largely up to whether the farming community drives its own change, or has change done to it.
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