Carbon credits turn to debt
For a country that has been so polarised on the climate issue and has struggled to make progress implementing effective mitigation policy, it is surprising how often the subject appears on the front pages of the national newspapers. I am in Australia for a couple of weeks visiting friends and relatives and seemingly on cue the carbon issue is front and centre of The Australian [$$] on the day I arrive. A previous visit timed itself perfectly with the announcement by then Prime Minister Julia Gillard that the country would have a carbon tax (now in the process of being repealed).
This time, the story headline is “Heartache as carbon credits turn to debt” and it discusses the challenge that one particular farmer is having banking his soil carbon credits. This may sound a bit obscure for the front page of a national daily, but such is the issue in Australia that a story like this becomes national news. Soil carbon is now at the heart of the national mitigation effort, with the government implementing an Emission Reduction Fund to encourage farmers to change their tilling, land management and crop growing practices to build up carbon in the soil. The increase in soil carbon can be converted to carbon credits and sold to the government.
In the case of the farmer in this story, the stored carbon on his property and its potential for credit issuance is not being recognised as an asset by his bank and therefore his farm is under threat due to debt issues (unrelated to the credits). The problem the bank has is that under the current rules soil carbon credit issuance requires a guarantee of permanence that stretches out 100 years. This in turn ties up the land for that period, which potentially impacts on the bank should it end up with the property due to mortgage default.
There are plans by the current government to change the permanence requirement to 25 years, which may help solve the problem above and others like it, but in turn raises a new problem related to the mitigation potential of soil carbon. The point about carbon sequestration, whether it be via CCS, reforestation, soil carbon buildup or other means is that it should be permanent because of the cumulative nature of carbon emissions to the atmosphere. Simply reducing the flow of carbon to the atmosphere in a given year isn’t good enough if that same carbon eventually makes its way into the atmosphere later on.
While a 100 year permanence requirement doesn’t guarantee true sequestration either, it does at least shift any future release of that carbon into a time when the energy system should have substantially changed and other anthropogenic emissions are therefore much lower or even approaching zero. This can’t be said for a 25 year requirement. In such a relatively short space of time the energy system will still look largely as it does today, even if big change is underway. We need to be able to store carbon well beyond the fossil era or ensure that permanence actually means permanent.
With soil carbon now so important to Australia, these and other issues related to its implementation and most importantly, effectiveness and therefore recognition internationally are bound to continue to make news. While resource development is now the primary generator of national wealth, the country is nevertheless turning again to its rural sector to make ends meet.