A key part of the Australian Government’s Direct Action Plan to presumably reduce emissions is to encourage the sequestration of carbon in soil. Given that the government has ‘axed the tax’ and plans to scale back or abolish the Renewable Energy Target, soil carbon sequestration is a key part of Australia’s carbon abatement policy. Soil carbon sequestration offers the alluring possibility of reducing Australia’s emissions without ‘clobbering the economy’. Instead of penalising businesses for emitting carbon, the Australian Government, through the Emissions Reduction Fund, will provide direct incentives for businesses to be rewarded for reducing carbon. Farmers will be a key beneficiary by producing carbon credits that polluters can use to offset emissions. This will allow Australian industry and consumers to operating as we always have without the associated economic restructuring caused by de-carbonising our energy sector.
How does soil carbon sequestration work? Essentially, it is a process where plants draw in carbon from the atmosphere and store it in the soil. Plants need carbon to grow. In fact, soil scientists have been alarmed at the falling rates of soil carbon in Australia and what this means for agricultural productivity and flora biodiversity. The Food and Agriculture Organization estimates that agricultural land could sequester up to 10% of atmospheric carbon, or 20 Petagrams (Pg, equal to 1 billion metric tons). To put that into perspective, in 2008 China emitted 6.5 Pg, USA 5.8 Pg and Australia 0.4 Pg. In addition, soil carbon sequestration have valuable co-benefits in improving agricultural productivity and enhancing the resilience of farms to droughts and other extreme weather events. There are also environmental co-benefits from soil carbon sequestration, such as improving the land’s ability to retain water. Clearly, soil carbon sequestration could be a key tool to fight climate change, as well as other looming global issues such as food security and water scarcity.
Despite the potential, there are some concerns about using soil carbon sequestration. The first is the lack of permanence. That is, storing carbon in soils is not treated as a permanent reduction in carbon emissions unlike (for example), switching from coal-fired power stations to solar power. This is because soil carbon levels change in response to natural and human-induced events. The lack of permanence reduces the value of carbon credits generated from soil carbon sequestration relative to permanent carbon reductions. Lower value for the soil carbon sequestration would also reduce the incentive for both farmers and investors to implement these projects. For some farmers, this may not be an issue because the shorter duration of soil carbon sequestration carbon credits means they do not have to lock up their land on a permanent basis.
Another concern is the limited commercial return from soil carbon sequestration. Analysis by Melbourne University researchers indicated that carbon credit prices of $23/t would be insufficient for farmers to generate a profit from soil carbon sequestration. This is mostly because of the cost of nitrogen required to stabilise the carbon in the soil. That is, additional nitrogen-based fertilisers are required to keep carbon in the soil. The analysis did not include the yield bonus from storing carbon which may outweigh the additional cost of nitrogen inputs. However, the analysis also did not account for additional irrigation costs to maintain pastures. For soil carbon sequestration to financially break-even, farmers would need to be able to sell their carbon credits for at least $30/t. Given that the Australian Government is the main purchaser of carbon credits under Direct Action and would have at the maximum a budget of $2.55 billion over the life of the Emissions Reduction Fund, at the most the Government will be able to finance the abatement of 85,000,000 metric tons (0.085 Pg) of carbon. This is approximately 20% of 2008 emissions. However, this understates the recurring cost of investing in soil carbon sequestration due to the non-permanence of the carbon credits.
Generating carbon credits from soil carbon sequestration is unlikely to appeal to all farmers. The financial attractiveness of soil carbon sequestration is critical for the success of the current Australian carbon reduction strategy. Leaning on Australian farmers may be insufficient to get the job done. And, the axing of the carbon tax may have actually harm the viability of the ‘carrots only’ strategy of relying on carbon credits to provide incentives to farmers and other industries to reduce carbon emissions. Unfortunately, the repeal of the carbon tax removed a major source of demand for polluters to purchase any kind of carbon credits. So what may happen is that the Australian Government may become the only purchaser of carbon credits to offset national carbon emissions. This means the tax-payer will be ultimately paying for polluters’ carbon emissions. This would hardly be efficient and equitable for polluters to lean on taxpayers for essentially returning to a more carbon-intensive economy.