Options for Catchment Management Authorities in the Carbon Market

1. Options for Catchment Management Authoritiesin the Carbon Market Andrew Campbell Triple Helix Consulting July 2007

2. Outline Introduction Climate Change, Carbon Trading and Biosequestration Why should CMAs be interested? Some existing biosequestration schemes The PM’s emissions trading task force & other developments Opportunities and Risks for CMAs Options for CMAs in the carbon market Do nothing — Watching brief Guardian of the RCS — Quality Assurance Carbon counter — Facilitator Strategic Investor Market Player

3. CO2 NOX CH4 SO2

4. Surface Temperature: A Millennium Scale Perspective 2 1 N.H. Temperature (°C) 0 -1 1400 1000 1200 1600 1800 2000 Year Mann et al. (1999) GRL 26:759-762

5. 1980 2000 2020 Observed carbon emission trajectory compared to projections and stabilisation scenarios Raupach et al. 2007

6. Climate change summary • Stronger evidence (i) of warming beyond natural variability and (ii) that human-driven emissions of greenhouse gases are the primary cause. • Climate change impacts now observable. Adaptation to climate change is no longer a question of ”if” but rather of ”how”, ”where” and ”how fast”. • Recent trend observations of C emissions, temperatures and sea levels, coupled with new understanding of feedbacks, imply more severe climate change through the 21st century - and rapidly increasing risks of serious impacts, notably for water availability. • In 2006 Stern assessed that the economic costs of inaction far outweigh the costs of acting to avert severe climate change.

7. Carbon trading and Biosequestration • Reducing net global emissions is urgent Three ways to do it: • Avoid, reduce or offset carbon emissions • Biosequestration (tree planting) is a key offset mechanism • For many sectors, it will take time to re-tool to avoid or reduce emissions • So offsets will be needed for many decades to come • The best way to get revenues from offsets is through a carbon market

8. Existing Australian Biosequestration Schemes Two types: • Mandatory (formal, regulated) • NSW GGAS the only Australian example • Voluntary (informal, unregulated) • Many examples in Australia and OS • A new entrant almost every week • Diverse, patchy, inconsistent, hard to track & evaluate

9. Exemplar biosequestration schemes • Greenfleet • Voluntary scheme established in Victoria in 1997 • $40/year offsets emissions from one vehicle by planting 17 trees • Greenfleet pays landholders for reveg - prefers sites >10ha • Does not require a covenant • CO2 Australia • Accredited under NSW GGAS (rigorous measurement requirements) • Mallee plantings (unfenced belts) in mid-low rainfall zone • Can integrate into grazing & cropping systems • Farmers retain ownership of land, pay nothing • Trees and carbon are owned by CO2 Australia • 10% strike rate with farmers expressing interest

10. Regional Service Providers Delivery Model Landholder recruitment Delivery Agent CarbonSMART Regional Services (CMAs) Eligibility Test Independent Carbon Modelling Project Plan Template (s) supplied by LCS Project Registrations Record Keeping GIS Data Field Assessment LCS Develops and Delivers Training Course Independent Audit LCS to manage Compliance Reporting Field Assessments Monitoring Verification Landholder Payment LCS = Landcare CarbonSMART Carbon pool manager, keen to partner with CMAs, recognises existing plantings

11. The PM’s Emissions Trading Task Force Report sets out key design parameters: • A ‘cap and trade’ model with a long-term aspirational goal • Maximum practical coverage of all sources and sinks, and of all greenhouse gases • Carbon offsets through vegetation sinks are expressly recognised, including during the transition phase to a new national scheme • Agricultural emissions (for example methane from ruminants or carbon released during soil cultivation) are excluded at this stage due to measurement difficulties; • Land use change (for example land clearing) is also excluded.

12. Key issues to watch as a national scheme emerges • The long term emissions reduction target • The level at which the cap is introduced • Timeframe over which carbon rights need to be secured • Whether end-uses of timber get counted in forestry schemes • Whether measurement difficulties for Ag emissions can be overcome • Whether a two-tiered market of mandatory and voluntary trades persists • And hence the distinction between ’industrial’ and ’charismatic’ carbon

13. Opportunities Revenue stream On-ground action More incentives for landholders Influence big investments Encourage projects consistent with RCS and vice-versa Attract support for more ’environmental’ sinks projects Implement RCS Risks Financial (ROI) Technical Policy Resourcing Reputational Opportunities and Risks for CMAs

14. Do nothing Watching Brief Carbon Counter Quality Assurance Guardian of the RCS Facilitator Strategic Investor Market Player Options for CMA involvement in carbon trading(not mutually exclusve)

15. Do Nothing (reasoned inaction) • Minimises risks • And opportunities, at least from ‘early mover’ positioning • Could be surprised by sinks projects that are inconsistent with RCS

16. Watching Brief • Slightly more proactive than do nothing • Allocate some resources to becoming literate in carbon markets • Keep a close eye on NSW pilot project (7 CMAs with DPI Forests)

17. Guardian of the RCS • Promote and defend the Regional Catchment Strategy • Seek to influence the carbon market accordingly • Consistent with CMA core business and may lift awareness of the RCS • But trying to influence a market you’re not in is very difficult • Blue gums an instructive example

18. Quality Assurance • Certifies environmental value of sinks projects (either formally or informally) • Could be seen to be ‘picking winners’ • Requires rigorous, defensible systems that won’t be cheap to establish • But such systems will have wider value for CMAs beyond the carbon market

19. Carbon Counter • Measures and monitors carbon in its projects • CMAs already engaged in mapping and monitoring • This would take that up a couple of notches • May have spillover benefits for CMA project monitoring • Economies of scale may favour multiple CMAs

20. Project Facilitator • Steers carbon investors towards desirable projects from RCS perspective • Extends the Guardian option, by getting involved in project design and marketing • But does not involve direct participation in the market • Requires a good understanding of the market and its players

21. Strategic Investor • Through partnerships or joint ventures with specialists • Variations on the Landcare flowchart • CMAs stick to core business, leaving carbon market intricacies to the experts • Gives CMAs more direct control over projects • CMAs could choose to co-invest in desirable projects (e.g. NSW Northern Rivers) • But could be seen to be subsidising corporate activity • Out-sources some of the risks (not reputational) • Dependent on skills, model and credibility of chosen partner(s)

22. Market player • carbon pool manager and broker either directly or through a subsidiary • Develops a new line of business for CMAs • ‘Bulking up’ the carbon from reveg projects and on-selling it into the market • Riskiest option, exposure to realk market risk • Requires legally robust contracts with landholders and rigorous carbon accounting systems • Arguably not core business - “CMAs no better placed to manage a carbon pool than a grain or a lamb marketing pool” • Voluntary market in charismatic carbon may be more prospective • Crown frontages a particular opportunity

23. Summary • Carbon market is immature and fluid • Environmental plantings not very competitive as sinks • Unless the carbon can be marketed as charismatic • Considerable technical and legal challenges in the mandatory market • But likely opportunities in the voluntary market for some years yet • Working together across CMAs makes sense

24. Policy implications & suggestions • Now is a good time to be trying to influence the detail in designing a national scheme • This will be important if mixed species environmental plantings are to be competitive • Key priority is to improve rigour and precision of carbon accounting • And to develop simpler contractual arrangements with landholders • Offsets on Crown Frontages merit specific attention • Value in sharing info/experience across CMOs nationally