Selling carbon from trees and soils
Many farmers appreciate the value of well-designed tree plantings and healthy, carbon-rich soils for their farms. There are many other positive benefits from farm trees and healthy soils that deliver economic and productivity gains to farmers. With markets for carbon now emerging, many are also wondering if selling carbon credits from their trees or soils is worthwhile.
Research indicates that there are benefits in building carbon in soils and vegetation. These include increased water holding capacity and the ability to store and exchange nutrients. This improves farm productivity and delivers economic benefits, even without selling the additional carbon.
There is a natural maximum limit to how much carbon can be stored in a hectare of soil or forest (driven by climate and rainfall). It is important for landowners to appreciate that carbon credits from an approved carbon sequestration project (soils or trees) will not offer an ongoing or enduring income stream. However, they can still offer some valuable shorter-term income.
Here are some of the questions to address before landowners consider selling carbon from farm carbon sequestration projects involving trees or soils.
What to consider
The first things to consider are the reasons why you might like to sell sequestered carbon from trees or soils on your property.
- Does it fit with your long-term property/business goals?
- Understand the rule for carbon projects before you start. Contact the Australian Government Clean Energy Regulator for the latest information.
- Rather than sell carbon from your farm to other entities, might you want to retain your carbon gains to offset against your own farm emissions in the future?
- Seek advice so you understand the future projected carbon sequestration rates and annual carbon credit income estimates over the coming decades.
- Has your farm plan identified sensible areas for revegetation of trees or long-term perennials?
- Where will the new tree plantings or pastures fit within your ideal whole farm plan layout for improving and maintaining farming efficiency?
- Understand the implications for the catchment water yield of large-scale tree planting or pastured areas and how these might affect run-off into farm dams over the longer term.
- Understand the expectations of carbon buyers in terms of tree or pasture species (exotic versus indigenous, natural vegetation or agroforestry for timber use).
- Do you wish to achieve additional benefits such as farm shelter, biodiversity gains, water quality improvement, productive pastures, and erosion or salinity control? Can you combine them all?
- Can you manage any additional tree or pasture maintenance that may be required?
- What if you wish to change or adjust land use on your farm in future? Does a carbon contract restrict future management options? (E.g. can you remove some shelter trees for larger machinery access? Can you shift from perennial pastures to crops if markets change over time?)
- Are you prepared to undertake benchmarking and ongoing sampling and measurement activities to verify carbon stocks?
Your rights and responsibilities
There is an emerging carbon market, which offers payments for new carbon being sequestered on farms via approved and registered carbon projects. Where there are payments, there will also be legal obligations that farmers must be aware of, so it is important to always seek your own legal advice.
Participation as a seller of carbon is voluntary, so farmers get to choose if they would like to participate and register a carbon project. Here are some of the questions to ask.
- Are there any upfront or ongoing fees or costs (direct or indirect) to you?
- Will your carbon agreement be registered on the property title and, if so, what is involved?
- Will any longer-term restrictions or conditions be placed on your land?
- Do you understand the potential implications of carbon contracts and implications for other areas of the farm business (e.g. bank mortgage, loans and investments, property titles, lease agreements)?
- Carbon agreements can last for many years – are there any implications down the track?
- What happens if you experience carbon release events, such as from a bushfire, or if your trees or pasture die out during a severe drought period?
- How often will you receive payments for your carbon and how might these change over time?
- Do you understand future management and measurement arrangements, and requirements for access to your property?
The following questions will also be helpful when first considering whether to sell carbon from your farm. Independent advice from your legal and financial advisors may assist you to fully evaluate any potential implications for your farm business.
- Will a carbon contract affect the value of your land, or create complications when trying to sell your land in future?
- What legal contracts and obligations come with the carbon sale? Is a permit required from local government?
- Will you have enough carbon credits to make it financially worth my while, and to cover consultants, legal, audit and management costs?
- What price should you expect for your carbon? How might the price change in the coming decades?
- What are the tax implications in selling carbon?
- Is the carbon offset provider compliant with relevant legislation and Australian standards?
- Does the contract limit your ability to change land use in the future, should you need to do so (e.g. to meet changing markets or new technologies)?
- Do you need insurance?
- How is income from carbon projects treated for taxation purposes?
- Does your contract allow for future modifications and what are the penalties for terminating the contract early?
- What might the implications be in 30 years’ time, especially if carbon is worth a lot more by then?
- Will a changing climate (hotter or drier) affect your farm’s ability to increase and safely store carbon in the future?
More information
For more information see: