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Australian National Registry of Emissions Units Bill 2011 Carbon Credits (Carbon Farming Initiative) Bill 2011 Carbon Credits (Consequential Amendments) Bill 2011
House of Reps
- Parl No.
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Standing Committee on Climate Change, Environment and the Arts
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Standing Committee on Climate Change, Environment and the Arts
(House of Reps-Tuesday, 3 May 2011)
CHAIR (Mr Zappia)
Mr KELVIN THOMSON
- Dr WASHER
Content WindowAustralian National Registry of Emissions Units Bill 2011 Carbon Credits (Carbon Farming Initiative) Bill 2011 Carbon Credits (Consequential Amendments) Bill 2011
CHURCHILL, Mr William, Communications and Public Affairs Manager, AUSVEG
PUTLAND, Mr David, Climate Change Officer, Growcom
CHAIR: Welcome. Do you have any comments to make on the capacity in which you appear?
Mr Putland : Growcom is the peak industry body for horticulture in Queensland.
CHAIR: Although the committee does not require you to give evidence under oath, I should advise you that the hearings are a legal proceeding of the parliament and warrant the same respect as proceedings of the House itself. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. The committee has received your submission and I now invite you to make any additional comments or an opening statement. We will then open for general discussion. We are on a strict timetable and have already run over with the previous witness, so if you could perhaps keep your opening statement to a brief outline, that will enable us to pursue the points of interest that we want to pursue.
Mr Churchill : I will keep it brief in the interests of time. For your benefit, AUSVEG is the peak industry body representing the interests of about 9,000 vegetable and potato growers around the country. We are funded partly by the National Vegetable R&D levy, which operates through matched funds and also through private funding, which allows us to be here today. This proposed carbon farming initiative has the potential to engage the vegetable and potato growers in sequestering and abatement of carbon and AUSVEG strongly supports this concept of the CFI and its goal to drive carbon sequestration and abatement in agricultural systems. However, a significant number of potential risks to AUSVEG members remain in the legislation. This submission we have provided to you outlines those. I would like to make one key point today. The legislation as we see it has a bias for forestation at the moment and we have significant concerns on the moral ground about the state and its obligation to provide food for the country. It is interesting that there are a lot of moves to use prime agricultural land for forestation. Keeping it sweet, I will pass quickly to Mr Putland.
Mr Putland : Growcom also strongly supports the concept of the carbon farming initiative as a method to drive abatement within the farm sector. However, we think that the opportunities for horticulture industries are actually quite limited. As William mentioned, it seems to be biased towards forestry on broadacre land. Few of the methodologies that are listed in the bill appeared to be compatible with continued intensive food production, which is one of our concerns. There are really only two methodologies that we think may fit the bill for horticulture, and they are the reduced nitrous oxide emissions from fertiliser use and also increases in soil carbon. We believe that the abatement potential is actually quite limited and I think this has been confirmed in a recent report from the Department of Climate Change and Energy Efficiency looking at realistic levels of abatement in the farm sector. We also are a bit worried about the cost of participation not only in instigating these projects and getting a project up but also then the costs of registration, monitoring, reporting and auditing, for example, that are likely to take the gloss off the cost-effectiveness of any scheme. As a previous speaker mentioned, the demand for the credits is unknown at this point and because of that also the price is unknown, and because of that it is extremely difficult to come to a view of the cost-effectiveness of the scheme from our industries' perspective.
CHAIR: Thank you. Ms Hall.
Ms HALL: You mentioned that there is a bias towards forestry and that the opportunities for horticulture are limited. What are your suggestions to increase the opportunity for horticulture?
Mr Putland : That is interesting. As the bill stands, the only methodology really that exists at the moment is forestry. The problem with horticultural production is that it tends to be very intensive use of a relatively small area of land. So if a business is to continue food production there is no spare land on the majority of properties to do that sort of abatement project. The bill does include a couple of methodologies that look potentially successful. One of them is the fertiliser management. The trick with that one, though, is to develop a methodology that a small grower can use, and that is likely to be a very expensive and complex process to develop these methodologies. There has been a suggestion that it will probably be driven by the fertiliser industry rather than individual growers and then growers can pick it up if they like. There is also a continued question mark over the role of soil carbon for sequestration and the actual amount that can be sequestered successfully. I think some of the bigger steps to be made here are in the research and development of these methodologies to maximise the potential for horticultural businesses to participate.
Ms HALL: What would you like to see happen in that area? What initiatives would you like to see introduced to accompany this bill to encourage investment in those two methodologies?
Mr Putland : One of the big things would be to encourage research into the methodologies. It is a very complex business. For example, Growcom is already involved in a project looking at different farm management practices and the effect that has on emissions on farm. That is a project that is funded by DAFF and also involves a couple of departments of primary industries, for example. We are doing the fieldwork in the Granite Belt in Queensland. There are some quite promising results for the use of nitrification inhibitors and the effect that that has on nitrous oxide emissions. However, turning some of those early results into a methodology is quite a time-consuming process. It needs to be replicated across multiple soil types, crop types and farming systems, for example. That is well beyond the scope of an individual grower and so needs to be a process that is encouraged and sponsored by government.
Ms HALL: Both of you, at the commencement of your statement, said that you supported CFI. I was wondering whether or not you support the initiatives that are outlined in this bill. If you do not, which ones do you not support and what needs to be included? Will this legislation have any adverse impact on the people you represent?
Mr Putland : In terms of the Carbon Farming Initiative, because it is a voluntary scheme it may not necessarily have any negative impacts on individual growers. They can elect to be part of it or not. The benefits to those individual growers who choose to participate are an unknown quantity at this stage, given the unknowns about the price of the permits plus the costs of participation. Broadening that out a little bit, the price for the Carbon Farming Initiative credits is likely to be low unless there is a price on carbon. That, then, is a different kettle of fish.
Ms HALL: Are you supportive of a price on carbon?
Mr Putland : The short answer to that is that we acknowledge that the majority view amongst those people who actually know what they are talking about is that a price on carbon is the most cost-effective way to drive emissions reductions across the economy. We agree with that view. The trick is to design the scheme in such a way that it does not introduce new costs to individual businesses that cannot be met. In the case of horticulture industries, a price on carbon is likely to lead to increased input costs—fuel, fertiliser and chemicals, for example. Given that it is similar to the previous CPRS, we can go back to some of the economic modelling there and suggest that input costs are going to go up by about three to five per cent. In the case of horticulture, individual growers really do not have an opportunity to recoup that cost. They do not have the opportunity to pass that cost down through the supply chain, so they really just have to swallow it. Given the lack of opportunities in the CFI, they really do not have the opportunity to have another business venture or to diversify in a way that will recoup those costs. This is where—
Ms HALL: Unless they look at those two initiatives that you referred to earlier.
Mr Putland : Yes. Again, there are too many unknowns at the moment to really analyse that in any sort of depth. When we combine the CFI with the carbon price that is where it gets very complex. Because the CFI relies on a carbon price to drive demand, that carbon price in turn will have negative impacts on the businesses that we represent. While we are supportive of the concept in both cases, it is very hard to get down to the detail of how it is actually going to work and what the exact impact on our businesses will be.
Ms HALL: We have legislation that we are looking at here that relates to the CFI. You have already stated that you generally support the CFI.
Mr Putland : Yes, that is right.
Ms HALL: I just want to pull you back to the legislation we have here. Can you share with the committee whether or not you are supportive of this legislation—and, if not, why not.
Mr Putland : I think the short answer is: yes, we are supportive of the legislation.
Ms HALL: Okay. Thank you.
Ms BURKE: In terms of the things that you have looked at, leaving aside the CFI stuff, is your industry looking at the need to adapt and change anyway to already occurring environmental changes, such as issues with soil degradation? Are there some offsets that can come from work that your growers are going to have to be doing anyway just to survive in the current climate, leaving aside the changes that we are predicting? Aren't there some productivity benefits that your industry can gain through work that it will probably have to by virtue of the current environment, let alone projecting out to what the scientists are telling us? Does the industry see some benefits in having to address this on top of the benefits through a scheme like this?
Mr Putland : The short answer is of course. Many of the steps to reduce emissions listed in the bill are used within the industry, although they have not been widely adopted. The early adopter growers are already participating in many of these sorts of practices. We have raised the issue before in terms of the additionality requirement that relies on the common practice test. Things like low til farming, which is an important method to reduce emissions, has already been widely adopted. We have had concerns about whether those growers that are already employing these various strategies may not be able to claim credit for it.
In our communication with growers, we are certainly pushing the point that these are all things that are worth doing anyway, regardless of whether or not there is a benefit from selling credits. In the case of increasing soil carbon, that is a good thing to do anyway. Any step to increase fertiliser efficiency is something that growers are already striving to do, because that is a cost minimisation practice. So, yes, many of these things are already being adopted.
Ms BURKE: Are many of your growers involved in the natural resource management plans for their areas? Have they been involved in any of those sorts of issues?
Mr Putland : Many of them are, but I would not know the details of their level of involvement.
Ms BURKE: Do you have any view about the part of the legislation that says that those plans must be considered in the overall schemes put into place so that—raising something that you have already mentioned—you do not get trees planted in areas that may destroy the water catchment or indeed take away good arable land. It is not a question of trees or food, I would have thought. Have they been involved in those sorts of things? Do you have a view on how they work?
Mr Putland : I am not aware of the details.
Ms BURKE: An earlier presenter to the committee today said that from his perspective s a farmer—that is his trade, although he was here with another hat on—he would see it as food production versus trees because the cost of that land is too prohibitive. You are not going to buy terrific arable land to plant a crop of trees on. It would go into more areas that need revegetation; that need work. Do you see that as being an issue in the long run or not?
Mr Putland : Over the longer term it is an issue to keep an eye on. The information that we have at present suggests that you are only going to get that direct competition, with land taken out of food production to be used for forestry, at relatively high prices of carbon, which is not likely to be an issue in the short to medium term. But that is certainly something that needs to be considered over the longer term. Protective measures need to be placed in the legislation just in case that sort of issue comes back.
Dr WASHER: I can see the problem that horticulture will have, because most of these practices are already being done, so the only improvement that I can rapidly think of is nitrogen fertilisers. We have this hundred-year concept in a number of other things in here. Under this legislation, if you were able to say that the fertiliser industry has addressed this in cooperation with growers, would that be covered and rewarded, or do we need to put something else in here?
Mr Putland : Our view is that the risk of reversal buffer addresses these issues with annual variation. One of the problems that we foresee is that individual growers would find that very confusing and complex—the scheme by which, essentially, you are insuring the amount of sequestration. I am not sure that it is necessary to address that further in the legislation. The risk of reversal buffer covers that. Further to that, insuring your sequestered carbon is going to be an important aspect of this that growers are going to have look into. I notice that there has been some, say, progress in ways of accounting for and taking account of annual variability. In the development of these methodologies that is something else that needs to be pursued to great depth.
CHAIR: You expressed some concerns on behalf of the people you represent that the administration costs could be a problem. What is your understanding of what the administration costs could be.
Mr Putland : From our reading of the bill, a lot of it is left up to the regulations rather than the bill itself. There are clauses like 'there may be a cost involved in registration of the project'. I imagine that will be relatively small. From our members' perspective, simply instigating one of these projects might be quite costly. So, for example, the cost of a nitrification inhibitor really increases the cost of your fertiliser. Or if you were to implement a no-till system it might cost in the vicinity of $100,000 for the equipment to get that up and running. Then you are looking at a very small return over a large number of years. So it is a very tricky investment decision to make.
Getting back to the nitrification inhibitor, again, the early data that we have suggests that the way that we have done it up in the Granite Belt you are looking at about $50 a hectare extra for the nitrification inhibitor. Then, the best case scenario, if what we are doing now is an approved methodology and you can claim all of it, is that you are looking at a return of about $150 a hectare. Again, that is the best case scenario. Given the intensive use of land and the profits per hectare that growers are getting and the risk of any reduction in productivity on that land, I think that return simply is not worth it.
On top of that you need to add the compliance cost. A lot of this is going to rely on auditors, who are obviously going to need to be paid, and a lot of those charges are unknown at present. Because of the small volumes of land and relatively small abatement potential, it is probably going to rely on brokers as well to aggregate a number of growers together to get a meaningful level of credits generated. That is also going to come with a cost. As I mentioned before, trying to estimate what those costs will be is very difficult at the moment.
CHAIR: I guess the viability question would entirely depend on whether there is a price on carbon and what that price would be.
Mr Putland : Yes, because that will drive the price of the credits generated.
CHAIR: Has your organisation come to a conclusion as to what would be perhaps the minimum price on carbon that would make it generally viable.
Mr Putland : No, we have not done any of that sort of analysis yet.
Ms BURKE: You have provided an interesting perspective that we have not got from anybody else. It was well done.
CHAIR: Thank you for your evidence. You will be provided with a draft transcript of today's proceedings. If there are any changes that should be made to the draft, please advise the committee secretariat.