WATTS, Mr Michael Corey, Regional Projects Manager, The Climate Institute

WOOTTON, Mr Mark, Chairperson, The Climate Institute

[10:19]

CHAIR: Welcome. Although the committee does not require you to give evidence under oath I should advise you that the hearings are legal proceedings 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 a contempt of parliament. The committee has received your submission. Is there anything you would like to add to the submission or would you like to make an opening statement.

Mr Wootton : I will start off. To give a bit of the background, I am the chair and founder of the Climate Institute. In 2005 we started the process of setting up an independent think tank come research institute based on climate change. The second thing is, I am also the chair of the Glenelg Hopkins CMA, the catchment management authority, but I am not here in that capacity. I am also a farmer. That is what I do. I farm Jigsaw Farms. My wife and I are managers and principals there. I thought it would be useful to start with to put into the context of carbon a little bit of the background there, from the practitioner, of where we are at. Then I will have just a couple of introductory comments and then I will throw to Corey to do some of the detail. But, again, I am happy to engage if you wish.

Jigsaw Farms is ten farms in the south-west of Victoria, just north of Hamilton. We farm just over 12,000 acres. It has a high rainfall—27 inch rainfall country. We run a high-input system grazing operation of beef and prime lambs. We run a fair bit of scale—we run about 60,000 DSE. We started in 1996 and we have accumulated, although it took a bit of a blip when the MIS schemes came around us. We are literally surrounded by them at times, so we have had to slow down a little bit there. We basically are trying to produce an economically sustainable model that at the same time is conscious of some of the broader sustainability issues floating around. Positively, our carrying capacity and our output is double the best of the district averages, so we run a high-input system.

At the same time we have got just over 12 per cent down to permanent revegetation, which is local mixed indigenous species. Not counting this, for the carbon offsets we also have an agro-forestry component of about 11 per cent. So we have a fair bit of tree range within a high-rainfall area. I heard you ask a question before about this and I am happy to address it later on. One of the stories in essence is that we run, to use the mantra I use when I talk to farmer groups—and I have spoken to 66 groups in the last two years in my capacities wearing different hats—is that carbon sense makes economic sense. That is where the CFI fits in quite neatly, because I think there is an opportunity to engage with the farmers in a positive way. To be quite honest, regardless what their view of climate change is, it is a way of engaging them to understand what the risks are.

At Jigsaw Farms we simply are risk managers. We have gone down a path of trying to increase productivity. We are showing that you can actually have an integrated system where the trees are not seen as a threat. I should say that there is a limit to what you can do in the high-productivity country. My vision is that CFI would be not have a large impact in the higher productive country where we are, and then running down to the dairy country. It probably will have a larger impact in some of the more marginal country. It will relate to land values in essence, or, marginalised land. That would be our call.

We are beyond carbon neutrality with our 13 per cent of trees. If there were an active and properly priced market we would actually engage in that as an income source. When I talk to my bank manager each year when I go and get my loans reassessed I basically have this conversation where he is now in our space, because he would see it as reliable income. Whereas with the rest of it we are very much price takers in the wool job, although it is a very good job at the moment!

CHAIR: So you are not going to complain about it.

Mr Wootton : You have all been judged on how much wool you are wearing. It is the same with the lamb job and the beef job. It is a particularly strong time for graziers, but not so good for a lot of people around us with cropping operations.

In a nutshell, we welcome the CFI. We think it is a particularly good area. We also see it as a great opportunity. This goes back to why we set up TCI, the Climate Institute; it really was trying to be genuinely nonpartisan in its approach. I think this is a great opportunity for a multipartisan political endorsement of what is a good, but not perfect, scheme. I think it is a good opportunity to get started. I have seen there is some dialogue floating around at the moment in terms of whether it is too early and whether you need to have other things in place. I would encourage you to endorse it, for no other reason than that, when people like me go and talk to farmer groups, it gives you an opportunity to engage about the opportunities of climate change and not necessarily all the problems. That is something we are really missing from our armoury at the moment.

Do not get me wrong. There is a whole range of things which are not in that which we need, and there is a whole range of methodologies which are not ready which we need. But I still like this. From the farmer's perspective, just stepping back, I quite like the concept; I think I have got my head around it. Basically—and this is probably not the correct language—you accept that there is a go zone and a no-go zone, and that is how you start. Where you have got sign-off of good methodology, you will not have perverse outcomes.

From our point of view, wearing my catchment hat, I am very conscious of what happened with the MI schemes in terms of watertable issues in particular. So you would want to make sure that you would not be affecting large monocultural belts. That is not going to happen in our area, where land is $2,000 to $3,000 an acre. You are just not going to have it, unless there is an almighty price signal. If you were to move into the marginal country then, yes, you would want to have some good understandings in terms of your outcomes.

When I talk to farmers about productivity increases they get very familiar with and very happy about talking about carbon because they see it as an opportunity. In our land production there is a fourfold change, in terms of the same lands, in terms of their efficiencies, in terms of being able to produce lamb off the same feed. So we want to understand why that is happening: is that to do with feed? Is that to do with metabolic rates and whether you have to use DNA markers? I am unabashedly very happy with any GM-type technology that can come forward to go forward. So I am in that spot. We use fertiliser like snow. I mean, we are very much in that high productive place. But, at the same time, farmers are looking for opportunities to engage, where they can actually add value to their business, and then, if they can get acknowledgement in terms of the carbon space, that is great. But I see the opportunities there are actually twofold.

So I do not think it is a high-risk strategy. I think that some of the figures floating around about take-up are highly exaggerated. I have spoken to a lot of farmers. I think that, if anything, it will be very difficult to get people to engage, because they will be scared witless of the permanence rule. That is going to be one of the ongoing issues for us.

That does not mean that there will not be swards of salt country or other areas which you could have the mallee planters or whatever go into. I personally have no issue with degraded landscape or certain monocultures being replaced by other carbon sink monocultures. I do not have a problem with that in the landscape. You just need to understand the repercussions in terms of some of your water and hydrology.

So that is my backgrounder. I am happy to throw to Corey now.

Mr Watts : If it is appropriate, I would like to just give a brief summary, to complement the practitioner NGOs' perspective, of our take on the Carbon Farming Initiative. It is something we have followed very closely, beginning with the opposition government negotiations under the CPRS debate and the development of an offset scheme in that piece of legislation and since then. We were pleased to see that the government brought forward the development of an offset scheme. We think it is really important. To date, there has been precious little attention to policy development in the climate/carbon, agriculture/land management space. Given that agriculture and land management is about 25 percent, give or take—is there is a drought, it is less; with good rains, it is more—of our emissions, it is imperative that we attend to that. It is imperative that we engage the full suite of rural and regional communities. And it is imperative that this country assume the lead in developing the technologies and practices that we can then export and give to a world that is demanding more food but a world that is threatened by climate change and rising emissions.

So, on the whole, we are recently confident that this bill strikes a balance between its twin principles of broad landholder participation on the one hand and environmental integrity on the other. And we recognise that that is a difficult tightrope to walk. We congratulate the Department of Climate Change and Energy Efficiency for their consultation—in a very short space of time, they have listened well and made some appropriate changes—with a few caveats. But we think that there are two keys to the success of this scheme. First and foremost, without a carbon price or direct investment this scheme will suffer from uncertainty and very likely low participation simply because the demand will not be there. The beauty of this scheme is that it is, in a sense, neutral as to whether you introduce a carbon price or whether you go with a more direct spend approach. It lends itself to either tactic, although the institute has favoured a carbon price and emissions trading scheme.

Additional funding will be needed in the early years of the scheme, principally for research and development and extension. Very, very importantly, extension money will be needed. We congratulate the government on apportioning $4 million to the Landcare community, a fine start. I was several years on the Australian Landcare Council, so I have had some experience there. My concerns are that there are already overloaded facilitators, and it is expecting them to do a big job with various communities all coming from different perspectives who have very little experience in the carbon market, so it is very, very important that we get that right. Those two things are really important.

We see this as an industry development program or part of an industry development program, so we think that it is really important that this is seen as catalysing investment innovation in those technologies and practices. It will start to reduce the land sector's emissions modestly—no-one is making any bones about that. It will not make a huge dent, but the projections that the department has made—and my sense is that they are realistic—are probably around 10 per cent of the land sector's emissions by 2020, so that is a reduction of 10 per cent.

Really importantly, that is gearing up those communities for a low-carbon economy. If we do not do that then we leave them high and dry. We deny them an opportunity to take part and to benefit from the advantages that come from that. Designed well, it could deliver important co-benefits. To their credit, the department have recognised that and taken steps to try to do something about it. We do not think it precludes other complementary measures that might be needed.

Overall, we think it offers modest but important opportunities and, importantly, a good first step with generally minimal risk. The safeguards and opportunities for public scrutiny are multilevel in this scheme and run throughout its life, so we think it is a good start.

CHAIR: Thank you for that. I will now throw it open to questions.

Ms HALL: I have a question. You talked about the take-up rate. The fact is that this is a voluntary scheme. I am just wondering—you stated that you thought it would be quite low initially—what needs to be done to increase the take-up rate. How can it be made more attractive to those people working in your industry?

Mr Wootton : I suppose the reason I made the comment is twofold. The first is that I think the economics might be there under a voluntary scheme where they will actually see it as an attractive thing to do, where they can get better income off other production systems. The second is that it is attitudinal. I have spoken to I do not know how many groups of farmers. I have talked to groups of farmers on a whole range of things to do with NRM or climate change issues. Typically, you go into the room, and I reckon I lose two-thirds of the audience as soon as I mention the term 'climate change', so I avoid that and I use some of the Victorian government's language now, which is 'climate challenges' et cetera, which seems to work well. Then all of a sudden you get them into a position where they are really happy to talk about opportunities and looking at their own business, but what they do not know is about the long term—and we cannot answer the questions: what is going to happen if they lock up and then later on their own business becomes vulnerable, having become carbon neutral themselves, and they have taken that opportunity out?

That is the risk of setting something at a low price, where you have sold. I understand that under the new legislation there is the opportunity to trade back, so to speak, but that will be based on the price at the time. If it is like anything else, you would expect that the price will just continue to rise. Farmers are reluctant because they are not sure about their own vulnerabilities in terms of price risks going along. In terms of your broader question, I think Corey touched on it before—that is, we are asking in our submission for $200 million over the four years which would allow you to come forward and engage not just the R&D, which the two previous speakers were talking about, but the extension stuff. If you are going to get people to understand, this is what you want them to do, even if they do not do it now. They are doing their whole farm plan and they are going to work on what systems they need to put in place in terms of shelter belts or whatever they want to do—or riparian correction or working with the local catchment management authorities in a range of schemes. You want them to be able to get that into their system.

That is the advantage, I think, of the CFI, because it is giving a signal. It does not mean that they will all take it up. The take-up is—how do you judge the success of the scheme? That may be another way of throwing the question. It might not be that everyone has gone and done it. It may be that there is an awareness of how they are going to do it in the future when the price is more attractive to them. Is that a fair comment, Corey?

Mr Watts : Yes, I think so. I would say that the government and the department have made efforts to streamline the processes by which you put forward a methodology and get it approved. That is always going to be a difficult process because you do not want to erode the environmental integrity of the offsets. But we think they have done it reasonably well. For instance, they have removed the financial additionality requirement, which is very, very important, particularly if you want uptake in the non-forestry areas from livestock and cropping, bearing in mind that if a methodology proves productive and profitable it is more likely to be permanent. People will keep it. So that sort of measure I think will help.

But there is a very big gap between people's understanding and this scheme. This lays out the words and the rules of the game. Out in the real world, there will be people who are sharks and snake oil salesmen. Like any new market, it needs public attention, it needs public investment, to make sure that people are able to navigate it properly and confidently and that they are able to get the best out of it for them and make the decisions that are in their interests. That is why we are calling for that money. That $200 million roughly equates to what was negotiated in the CPRS negotiations, but really it is an order of magnitude above what is on the table currently.

Together with that, you need an implementation strategy and you need to be able to consult with people who are already out there. You need to work with Indigenous communities and you need to work with sugar and livestock and all the industry groups, where sometimes Landcare communities cannot reach, if we are going to make the best of this.

Ms BURKE: Going back to my last question about the chicken and the egg—and you have touched on it—do we go now or do we wait for the price on carbon?

Mr Wootton : I think there are certain things that you can go now on. I think the advantage of going now is that you have an ability to get people not only thinking about it but looking for innovation. People do not innovate if there is no motivation. Let us just say, for example, that you were nervous about locking up land in terms of your own farming enterprise and you did not want to put as many trees on. You might start working out, if the signal is strong enough or if you have to do something, where they would go, but then, in terms of the technology—say methane reduction—you might say: 'Well, I can see an immediate dollar gain for my business from a business risk point of view. I'll engage in that and I will take the bonus out of CFI, because it is not like there is an immediate gain on double side.' Whereas, at the moment some of the technologies are there, but some of the tannin mixes and stuff that they are playing with at the edges are a bit wobbly there; you would want to trial it. But, again, people would innovate. And then, all of a sudden, in certain regional areas and high-productivity areas, you would have a high take-up of some of the technological shifts, whereas in the marginalised country they would say, 'I've got this salt area in the middle of some of that rangeland country.' In WA I know farmers who are literally looking at walking away from 5,000- or 10,000-acre farms. If they have something to be gained, it allows them to have dignity to stay where they are.

I am one of those odd people—I should not say this. I am actually not against MI schemes; I was just against what we did with the MISs. I think it is a way of moving urban money into rural areas and in well-constructed ways it is a fantastic opportunity, and you could see a whole range of things happening with that as well. It is a long answer but—

Ms BURKE: But also the other thing you touched on was the permanency, which would be the other take-up rate. If people are going to say, 'We're going to lock this up for a hundred years,' or, 'We're going to do this for a hundred years,' is that going to be one of the big hurdles to getting people, without a price signal, buying into something?

Mr Wootton : Even if there is a price signal, is there going to be a risk that you think the price signal is going to accelerate in the future and you do not want to go in early? But, again, that is no different than any other market I am engaged in. I sell commodities, so why is this any different? I am a farmer and I am a risk manager. You may want the money now and act later.

Mr Watts : If I may: the permanence question is a tricky one. You have to have 100-year permanence because, firstly, those are the international rules, and the scheme will not be able to plug into the international community markets without it; and, secondly, because of the residence time of carbon dioxide in the atmosphere. That is really important.

On the other hand, it will scare some people off. I think some people are getting unnecessarily scared because they see the word 'permanence'. In actual fact, as Mark said, a landholder will be able to relinquish that land under a carbon scheme. They just have to pay for the carbon that they would otherwise have stored, and that is fair enough—it is a trading scheme.

CHAIR: Can I just comment on the 100 years being international rules? Which international rules?

Mr Watts : I am sorry, I should not have said international rules. It is the gold standard for these sorts of schemes around the world. One hundred years is seen as the imprimatur of a good scheme.

CHAIR: Which flies to my next question: if there are similar schemes to this, and 100 years is taken as the benchmark, my understanding is that there is no similar legislation anywhere else in the world.

Mr Watts : There is an offset scheme in Alberta that has been running for some years, and I believe reasonably successfully. Again, I understand that uptake has been modest, but it is running. My understanding is that the department analysed that when they were designing this scheme.

There are also voluntary schemes; you are familiar with Australia Climate Exchange, which has recently stopped trading in the United States for want of certainty.

CHAIR: And they all applied a 100-year time frame?

Mr Watts : I believe so, yes. I could not say for certain, but I believe so. Things like the Voluntary Carbon Standard and other standards do apply that 100-year rule—it is commonly accepted. I know it frustrates people, but you have to have rules in your market. This is a market where we were trying to align private profit with public good, and so it is always going to be difficult.

Ms HALL: In your presentation, you referred to the fact that you saw some issues around methodology, and that there was some move to expand in the area of methodology?

Mr Wootton : I suppose it was more that there were some soil carbon opportunities. It is not unrelated to the 100-year rule, actually—the topics work there. It is just that the science is not strong and robust enough there at this point. I think that the CSIRO have come out on that point clearly, and said that we actually have to have more robust science there. That is about developing, and there will be some opportunities where you can show that it does work. But that is all about time and exposure; the methodologies for some of the easy things to account for, like trees and sequestering for example, are pretty straightforward. I imagine some of the robust ones would be about some of the lifestyle increases and productive systems there. The methodologies there would have to take some time to develop. I know that in general most dairy farmers are hot to trot on a lot of this stuff because they have technologies in place, but they have not gone through that long-term peer review process.

The period for review of it is 2014, so I think that from a simple Farmer Mark's approach you actually go through the process and say, 'Here is what you can do, here is what you can't do; here is what we need to explore', and in 2014 we will actually review where we got to. I cannot see it as a great risk, politically, for anyone, to be quite honest; I think it is pretty straightforward.

I come from western Victoria, which is not a bastion of radical behaviour, and most people who I talk to in that light say, 'Yep, no worries'. It is a tick the box sort of thing.

Ms HALL: You also mentioned—I think it was you, Mr Watts—industry development programs. Would you like to expand on that a little bit, please?

Mr Watts : At the moment we have had, say over the last 10 to 20 years, a lot of private and public investment in developing renewable energy, energy efficiency and low-pollution transport. We have yet to deploy this en masse, which is the point of having a price signal; but there has been a lot of investment in there, and we work closely with a number of those industries. So those industries are coming online, they are already proving themselves, but in the rural areas the investment just has not been there. There have been sporadic examples of people trialling different approaches, whether it be biosequestration or low carbon farming or renewable energy on the farm, but really there has not been any investment. To our mind this is the way government says, 'We think this is a high priority. We want to catalyse, we want to leverage private investment, and we will help this market get off the ground. We will help people to identify and take up the opportunities where they are in their interests.' That is what we mean by an industry development program.

Ms HALL: One final question. Listening to what you have had to say this morning and having read your submission, would it be fair to say, without putting words in your mouth, that overall you are supportive of the proposed scheme in this legislation?

Mr Watts : Yes; as I said, with some caveats. We think some improvements could be made but it is never going to be perfect. Perfection can be the enemy of the good and we think it is a good scheme.

Dr WASHER: You mentioned managed investment schemes. It is a passion of mine to hate them, of course, but I understand there are pros and cons. This brings in the carbon farming initiative. These are tax-driven schemes, which basically they are, and they can have good outcomes and bad, but let me take you for a second to Kununurra and the Ord River. I go through plantation after plantation of sandalwood for the perfumery industry. But it put the price of land and water to a level where folk cannot buy or compete to grow food because it is tax-driven and has inflated the prices. Whether that is good or bad is another debate. But do you see any perversity in these bills that might drive that kind of problem because now we have an additional factor for tax motivation to do things that would capitalise on this initiative that would make the market perverse out there for people on a farm to produce food, or make it less competitive for them to do that?

Mr Watts : I must admit I am not as fearful as others of it. Literally we have marooned blocks of farms with blue gums around. It went to quadruple the price of land, which meant we could not develop, so I share the frustration. I am not about to stand up and be the great supporter of the MIS blue gum schemes. But I do think that if it is structured correctly and as long as that list allows you to go where it is appropriate, where there are no perverse outcomes, then that may be one of them, that you actually limit the size that can go into a certain region, for example. I personally am a free marketeer, so I struggle with that, but if people were fearful of that and it meant that that was a way of getting your toe in the water to get started, I think people would accept that this is a learning by doing type exercise and there may be some caveats you have got to put in that regard. I sat on the Victorian government Climate Change Adaptation Advisory Council for 3½ years. It has just finished in March. We had a whole range of people on that, including CO2 Australia and Chris Mitchell. I sat next to him regularly. They are just not going to the valuable land and they will not compete with us on that high productivity land. They are going into the land which is cheap, where it has got things. I do not see that as perverse outcomes. It is a long answer to say no, but I am not prepared to put my hand on my chest and say there is no risk at all. I would have thought that come 2014 if that was happening that is when you would pull it up. Or you go to the Garnaut response, which is limit the take-up. Then you got some pull-back. That is where you need to have some say there.

Ms BURKE: You have got a very good perspective because you are on a catchment board yourself. There has been some controversy about incorporating the regional NRM plans and would they work and don't they and some are better than others, without denigrating. But the utilisation of them as an overlay in adapting the scheme, from your perspective how would it go?

Mr Wootton : My response is that there are some that are highly developed. There are 56 NRM organisations. I would like to put my hand on my heart here and say that Glenelg Hopkins CMO, which I chair, has a perfect one which will allow us to stick that scheme over the top. But I will be frank with you, we have not, and we would be one of the more highly developed ones. But does that mean we cannot go forward and work on that as soon as there is a signal in place or a judgment call made, particularly in terms of the hydrological cycle? We have some high-risk behaviours there that could come out of some of the mass plantings. I think it is reasonable to say that you would not go there. But long-term wise, if you are asking: do I accept the concept of regional plans? Yes. Do I accept that they need development? Yes. Do we need to have a whole range of perverse things beyond NRM in there? Yes. Personally, I do not think—and I know Sarah is going to come and talk next!—the CMO should be the sole people to administer that.

Mr Watts : May I just quickly jump in there. Firstly, the fact that the scheme recognises the need for alignment between carbon plantings and whole-of-landscape plantings is really important. That has to be one of the first. So that is a tick. Secondly, we understand and we have pushed this very point, which is, as Mark said, while some NRM groups or catchment authorities are probably able to grapple with a proponent coming to them, wanting to do a large planting or develop some carbon farming, many would not be. So they are going to need assistance. We understand from the department that they are looking at how government can do that, and that is going to be really important. We also know—and others will speak to this—there are NRM groups or catchment authorities who are hot to trot to get involved, to be aggregators of carbon. It probably will not be individual farmers for the most part—some of the large ones perhaps but the small guys no—and they will be gathering together either under the umbrella of industry groups or NRM/catchment groups. So catchment and regional NRM organisations have a really important role to play here not only in coordinating where it is best to put carbon plantings but also in coordinating individual landholders with the marketplace.

Also, importantly the scheme allows people to tag an offsets product with co-benefits. They are looking at how you standardise those co-benefits, including, say, Indigenous cultural and economic benefits as well as biodiversity benefits. There are a lot of conservation groups interested. That will allow people to screen a proposal not only in a negative sense but in a positive sense too. How can we direct carbon plantings to where they are going to do the best for the whole landscape?

CHAIR: On that note, Corey and Mark, thank you very much for appearing today. The secretariat will send you a transcript of what has been said today and if there are any changes that you think should be made to it, please advise us.

Proceedings suspended from 10 : 53 to 11 : 03