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 also many other positive benefits from farm trees and healthy soils that deliver economic and productivity benefits to farmers. However, many are also wondering if selling carbon credits from their trees or soils is a worthwhile activity.
Many researchers believe that the benefits of building carbon in soils and vegetation, including increased water holding capacity and ability to store and exchange nutrients, far outweigh what can be achieved from selling it.
It is important to understand there is a maximum limit to how much carbon can be stored in a hectare of soil or forest (driven by climate and rainfall). Hence a carbon sequestration project will not offer an ongoing or enduring income stream.
Here are some of the questions that should be addressed before landowners consider selling carbon from farm 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?
- Rather than sell carbon from your farm to other entities, might you want to retain your carbon for use in offsetting against your own farm emissions at some future point?
- 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 my ideal whole farm plan layout for improving and maintaining farming efficiency?
- What are the implications for the catchment water yield of large-scale tree planting or pastured areas and are there any restrictions in this regard?
- What are 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 offset market, which offers payments for new carbon being sequestered on farms. Where there are payments, there will also be legal obligations which 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 as a seller of carbon into the offsets market. Here are some of the questions to ask.
- Are there any upfront or ongoing fees or costs (direct or indirect) to me?
- Will my carbon agreement be registered on the property title?
- Will any longer-term covenants be placed on my land?
- What are the potential implications of trees or soils committed to carbon storage on other areas of the farm business (e.g. bank mortgage, loans and investments, property titles, lease agreements)?
- What happens if the carbon offset company goes broke?
- What happens if I experience carbon release events? (from bushfire, or if my trees or pasture die out during dry seasons and a drought period)
- Is there a risk of reversal (carbon depletion) clause within the contract?
- How often will I receive payments for my carbon?
- Will your company require access to my property? How often?
The following issues and 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 my land, or create complications when trying to sell my land in future?
- What legal contracts and obligations come with the carbon sale? Is a permit required from local government?
- Will I have enough carbon credits to make it financially worth my while, and to cover consultants, legal, audit and management costs?
- What price should I expect for my 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 my ability to change land use in the future, should I need to do so (e.g. to meet changing markets or new technologies)?
- Do I need insurance?
- Does my contract allow for future modifications?
- 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 my farm’s ability to increase and safely store carbon in the future?
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