BARLOW, Professor Edward, Professor of Horticulture and Viticulture, Convenor, Primary Industries Adaptation Research Network and Executive Director of the Climate Change Research Strategy for Primary Industries, University of Melbourne

GRACE, Professor Peter, Professor of Global Change, Queensland University of Technology and representing the Climate Change Research Strategy for Primary Industries and the Primary Industries Adaptation Research Network

Committee met at 09:47

CHAIR ( Mr Zappia ): I declare open the public hearing of the House of Representatives Standing Committee on Climate Change, Environment and the Arts and welcome all of you here today. The committee is inquiring into three bills presented to the House on 24 March 2011 namely the Carbon Credits (Carbon Farming Initiative) Bill 2011, the Carbon Credits (Consequential Amendments) Bill 2011 and the Australian National Registry of Emissions Units Bill 2011. This bills were introduced as a package into the House of Representatives on 24 March 2011. The bills have been referred for examination to both this committee of the House and the Senate Environment and Communications Legislation Committee. Both committees have invited submissions and I understand the Senate committee has already held their public hearing and our is today. The Senate committee hearing was on 20 April. It is the intention of this committee to extend and expand on some of the evidence presented during that hearing as well as to explore other issues arising from submissions. The committee intends that its report be prepared in a short timeframe. It is therefore hoped that any questions be resolved today and not taken on notice. This will assist the committee with its timely deliberations.

CHAIR: Welcome to the hearing.

Prof. Barlow : I am a professor at the University of Melbourne but I am also here representing Primary Industries Adaptation Research Network, which is a research network of the National Climate Change Adaptation Research Facility, and also the CCRSPI, which is the Climate Change Research Strategy for Primary Industries, which represents the research funding bodies in primary industries in Australia, the state government, the federal government, CSIRO and the Rural Industries Research and Development Corporation. We are not representing them in a policy sense but in the research requirements of this act.

Prof. Grace : I will not repeat what Professor Barlow iterated. We are representing the research under PIARN and also the CCRSPI research.

CHAIR: Although the committee does not require you to give evidence under oath, I should advise you that these 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 a submission from you, numbered 68. Would you like to make any additions or amendments to that submission? If not, would you like to make an opening statement and then we will ask some questions.

Prof. Barlow : I do not think we have any additional statements to make, but we are most interested to talk to you, because we believe that this carbon farming initiative is a good one. We think that it has the potential to engage the primary industries of Australia in basically greenhouse mitigation activities but, because of its broad coverage across both sequestration and carbon offsets in terms of methane, nitrous oxide and other losses from waste products, we feel that this has the capacity to engage the farming communities in activities that will help improve the competitiveness of Australian agriculture and also improve the carbon intensity of the way we farm—by 'improve' I mean decrease the carbon intensity by the way we farm. I think it presents great opportunities.

To summarise very quickly, our point today is that we represent a group of researchers who are intimately involved in developing both mitigation and adaptation solutions for primary industries in Australia. We currently operate under a $46 million program from DAFF. I chair that program and Peter is on the expert panel that helped put that program together. That program is probably worth about $100 million when you look at the co-funding from the state governments, rural RDCs, CSIRO and universities. This program will end in June 2012, and we think that if this act is going to achieve what it hopes to achieve in terms of engagement and reduction in the carbon footprint of primary industries and help Australia's commitment to future international agreement, it needs to be supported by research. There are still questions of the biology of how these things operate and questions of measurement. Unless we have these straight and allow farmers to operate in the mainstream market rather than voluntary markets, I think there is a good chance we will not get the engagement we need.

Prof. Grace : This is not just about carbon farming; it is about productivity, and that is where engagement is critical. If we do not do it using best management practices, which farmers are already employing, it is not going to work. When this whole research program was put together originally, first through the original AGO and then through DAFF, productivity was a key element. We worked directly with the R&D and the state governments in doing that, because we know that is the only way. When I talk to a grower, I do not talk about greenhouse gas emissions; they are indicators of inefficiency. I talk to them about productivity and being efficient farmers. That is where the engagement is and that is where the carbon farming initiative has got those hallmarks embedded in it. But there is still a long way to go.

Dr WASHER: Could I ask: you said there is $46 million and you got equal funding on top of that, which is terrific. But this research money terminates early next year.

Prof. Barlow : That is correct.

Dr WASHER: So what is the indication on the future? Obviously this is a fairly unique initiative, as we heard earlier. What is happening in terms of negotiations to continue the research that is going to be necessary to make this all viable in the long term?

Prof. Barlow : We do not know yet. You might be aware that in the original CPRS legislation there was a sum of $50 million actually attached to that legislation. Of course, it went down when the legislation went down. There was another sum of $40 million in Caring for our Country for sequestration-type activities, and that, of course, went down as well. So I guess one of our key messages today is that we need to rejuvenate that somewhere. One possibility would be for it to be connected directly through the Carbon Farming Initiative into any price on carbon. What I see now is a great many industry bodies and socially disadvantaged bodies quite reasonably coming through and asking for compensation, but everyone is forgetting that the Garnaut report was really revenue neutral. There is some to combat social disadvantage, some to combat export exposed carbon intensive industries and some to support innovating in our economy. We must not forget that third part—that is the key point.

Ms HALL: That is where you see that this fits in, that third part?

Prof. Barlow : Yes. How do we restructure our economy into a low carbon economy? That is what a carbon tax is about. We have to do it for the land based industries as well as for the industrial industries and our domestic.

Ms HALL: And to do that effectively we need to continue funding research?

Prof. Barlow : Yes, but research that, as Peter said, is intimately linked to improving the productivity fund. There are win-win situations out there—winning both for the farmers and for the environment in terms of productivity—and we would like to see that there is research there that captures those benefits.

Ms HALL: As this is a voluntary scheme, there needs to be the win-win aspect of it, because if it is not going to lead to an increase in productivity and more efficient farming there will not be any incentive for participation in it. What level of interest are you hearing expressed in participation in the scheme?

Prof. Barlow : I think it is changing. I think that in the initial draft legislation, which had that rather difficult financial additionality clause, most agricultural industries and farmers were finding it very difficult to see how they would play, because they have an asset on which they need to earn some income on, and the initial financial additionality clause said, 'If you are doing this for profit you can't claim it under this as well.' That has now been modified in the draft legislation, which I think will help. The second part of it is that you need to qualify and you need to be able to count what you have at a low transaction cost that allows it to happen, because if the costs of quantifying how much you store in trees, how much you reduce in terms of methane emissions and how much in soils or through nitrous oxide do not come down it will be difficult for farmers to really engage. The risk I see in this is not only in terms of mitigation but also in terms of the fact that farmers do not necessarily see it as we in research see it. For us there is climate change adaptation and there is climate change mitigation, but they just see it as climate change. So, if they turn their back on something that is around climate change, they will also not engage in the inherent things that they have to do to adapt in situ to inevitable climate change. We face something over the next 20 or 30 years—that is, that it is going to get hot and dry for most of Australia, though not for all of it—so they need to be engage, and this potentially either helps them to be engaged because they see win-win or, maybe, repulses them.

Ms BURKE: On top of that, as you were saying earlier about productivity, if you leave aside climate change, aren't there arguments anyway about salinity, erosion—their own farming practices that they have realise are actually doing their productivity damage—so that there are other ways of getting them to do programs that will be of benefit to their farming outcomes anyway? That is some of the stuff that you were saying.

Prof. Grace : Exactly. There are a number of analogous programs at work here. The thing is that we are not looking at just carbon; it is nitrous oxide, CO2—

Prof. Barlow : All the greenhouse gases.

Prof. Grace : All the greenhouse gases. I think that is where people miss the point sometimes. It is a suite that we have to be looking at. When you look at these other programs, everything works together. That is why Landcare and Caring for our Country have fitted in. Can I just talk about a point that Dr Washer brought up. This is a unique initiative. I work a lot in the US—I have got an appointment in Michigan—and we take our expertise to them now. It is not them coming to us. They are looking at us for equipment. They are looking at us for where this is all heading globally. Australia now is in the driver's seat in terms of where we are heading with methodologies. There are methodologies developed out of our work that we have collaborated with in the US that we can transport here, but we do need more data and we need to work very closely with the R&D and extension people in the RDCs.

Prof. Barlow : With the imminent running out of money for this program, there is the risk of the lack of delivery to Australia's farming communities. An important part of that, as Peter has just mentioned, is that we now have got to the point where basically the program we have is up to scratch worldwide and perhaps leading the world. Of course, research is powered by people, and we have a lot of terrific young researchers, but they are all on temporary contracts. So there will be an exodus from this program. The engine of this program is not people like Peter and I, who have to come here and do these things; it is the people who actually do the work. It is the people that we have recruited in the last three or four years—a terrific group of people coming through. We need to make sure that they deliver and deliver for this generation.

Ms HALL: So investment in further research and development programs actually provides a tangible, saleable product for Australia on the overseas market, by continuing the type of work that you are doing.

Prof. Grace : Definitely. With some of the livestock methane reduction methodologies and the feed reduction strategies, we work closely with other groups because of our knowledge and because we can move that technology into other countries. There is obviously some IP involved in that. There are trade opportunities through that IP. With soil carbon, we are providing more information that we can use in other countries, particularly in Latin America. Their research programs are quite small, but there are opportunities there. If we can improve opportunities for carbon storage in other countries, there is also trading of units between countries.

Ms HALL: Are there any IP issues?

Prof. Grace : I am not an expert on IP. I really cannot answer that. When it comes to agriculture, the carbon crediting field is so rigorous itself that I do not think IP is going to be a barrier. I think there will be some IP on individual products. There are some products for ruminant animals and there are some potential products for nitrous oxide, and they will be proprietary products developed by commercial entities.

Can I just say one other thing further to Peter's comments. There is not only the research technology here but there is also this inexorable march that we are now on toward this crunch in global food security, effectively. We are an agricultural exporting country. We hope to remain one and we need to remain one. The crunch is coming globally about how you produce food with a lower carbon footprint. It is coming in energy industries, it is coming in transport industries and it will come in food production industries as well. However we go forward, we have to go forward in the possession of the knowledge and technology to be able to do that and that will have a lot value internationally as well. We can lead that if we get started early enough, because of the nature of agriculture. There are few subsidies in Australia but not many in relation to the major developed countries in the EU and the US. We can do things in that area where we will be the leader.

Ms BURKE: There is the issue between using arable land for farming and using arable land for storing carbon by growing trees. Quite a lot of the submissions make that point. If we are going to lock it up then you are not going to be growing potatoes in it. How do we resolve that? We do not want to be a net importer of food—and I do not want to sound like the member for Kennedy here—

Prof. Barlow : God forbid!

Ms BURKE: It is really worrying that sometimes you have to agree with him! As you say, we are still a net exporter of food. People still have not got their heads around that. But we still want to grow and produce here in Australia. How do we resolve that? We could see the situation where people say, 'There's more money in locking up my land with trees or other projects than there is in growing fruit and vegetables and potatoes.'

Prof. Grace : Agriculture is diversification. That is what has made it successful and profitable. There has to be intensification and there has to be profitability assigned to it. When it comes to trees, you have to target where you put them. You will get the biggest bang for your buck by putting it on the most productive land, but the idea is to go to areas where there are problems with salinity and where the lands are degraded, and rehabilitate those degraded lands through targeted practices which this initiative can actually bring forward.

Prof. Barlow : That very point has been picked up a bit in the modifications to the legislation coming through. DOIC, the Domestic Offset Integrity Committee, needs to approve a project at the minister's discretion. Perhaps that is an area where something is needed because I think that issue you have raised is very critical. You can only really fill up the carbon sink once. It is not a long-term solution. It is only a short-term interim solution for the nation and for the country. But food has to be renewable. So we need to think very seriously about what land we use because we do not want to change the other parts of our lifestyle and we need to think very seriously about what land we need ongoing for food production because we want to remain an exporting country. Who knows how many people in the world in the future we might want to have here. I am not making any statements about that, but the world will need some contribution from us as well. I think that is a critical point that perhaps can be dealt with. At present it is at the discretion of the minister. Perhaps it needs to be a little stronger than that.

CHAIR: Would you like to elaborate on that? When you say it needs to be a little stronger, what would you suggest?

Prof. Barlow : I do not really have a specific suggestion, but what I might suggest is that the DOIC have a set of strong guidelines that they take into account not only to evaluate the sequestration potential of their projects but to take into account the long-term implications of those projects in terms of renewable food production. That is probably the way it should go.

CHAIR: Putting aside the question of research dollars, is there anything about this legislation that stands out in your mind that perhaps could be changed or should be changed to make it better? I will give you a couple of examples—and you touched on one just now. One of the concerns that has been raised is about projects having to have a 100-year life cycle.

Prof. Barlow : Permanence.

CHAIR: Yes. How do you feel about that?

Prof. Barlow : I think if you are going to be credible you need to have permanence in this. Peter, you may have a different view, but if you set up your carbon units correctly and you want to change your land use, it might cost you to do that. I think that is fair and reasonable. If you have accepted money to lock the carbon up and now you want to emit it, you need to do that. So I think permanence is an issue but if we have credibility in international agreements we have to be fairly firm on permanence. Where it currently is, I think it is okay with the understanding that if people do want to change what they have opted for carbon storage they might have to pay the market price for carbon.

Prof. Grace : Obviously the permanence issue is only in respect to soil carbon and treaties—

Prof. Barlow : The sequestration.

Prof. Grace : The sequestration aspect. The other areas are permanent reductions and that is where all that falls out the window. You do not have to worry about permanence. If it is not emitted by using the best management practice you have already met that permanence issue.

With respect to soil carbon, yes, it is difficult. We can build carbon stocks, but on the other hand it is variable. We know our climate has a big impact on that. Internationally, that is right: it has to stay there. It might go up and down. There might be some trajectory you have to follow, but I think within the legislation or whatever comes through next there would have to be some sort of system where if it does go down you are going to have to pay that credit back, obviously.

Prof. Barlow : As I read the legislation, I think there is the force majeure in them now for environmental ends so that if it goes down you may not have to pay, I think. That is not quite clear to me at present, but certainly there is a force majeure there for events that are outside your own control. I do not know whether we put climate change in that or not.

Dr WASHER: But the legislation suggests that if you go backwards they give you a chance to go forward to put yourself back in a neutral position and move on from there. So there is a little bit of generosity in that. I think what your submission highlighted for me, which was most important, was that outside of these bills we are orientated to compensating industries or people who are going to be disadvantaged by the change, but the reality is that we need the research. We are not really budgeting for that and when you hear that the money is going to run out at the beginning of next year with no projection, I think we have to rethink this and I think we in the committee need to address that because that is where it should be if Australia is going to take a leading role. I get asked this. I am a member of the coalition, as you know, and not all my friends see things the way I do, but being a member of this committee—

Ms BURKE: We do.

Dr WASHER: I agree, but I am not saying we do not have any problems. I think the thing is that if we are going to take a leading role in this we also need to be the leading researchers in this and we need a budget for it. Some of this money has to go to that.

Prof. Grace : We have made a good start—a big start. There has been a lot of infrastructure put in place. With the way things are looking we want to maintain that. There is not going to be a huge change in what is needed but we need resources for people and we need operating research. Equipment is probably the minor side of it, to be honest, but as Professor Barlow has already said, the people are there and are in place. As you mentioned, Dr Washer, if we lead this and then the money falls out, these people will be taken to other countries. The United States is one area which is always very attractive to go to.

Prof. Barlow : But as I said, just to reinforce that point, this is about meeting international requirements but it is really about transforming our economy. If we are going to do that the land sector has to be part of that as well, and that is what this research is about. There is research into solar energy and all the other energy technologies, and that is well and good and should happen, but this sector will ultimately have commitments. It will ultimately need to transform itself as well. We made a terrific start and it would be terrible to drop the ball now.

CHAIR: Professor Grace, based on your international experience, is there similar legislation in place or underway in any other countries, to your knowledge?

Prof. Grace : To my knowledge, there is not to this extent. There are some state based instrumentalities coming through, say, in California, and that has been well received. Actually, the interesting thing is that utilities have come on board in a big way in the United States. For example, the Electric Power Research Institute is actually funding research on behalf of utilities throughout the US on carbon farming—mostly nitrous oxide reductions—because those utilities will get the direct benefit. That is the other aspect, too. There are commercial investments here already—the fertiliser companies are putting in—but we do need a broad range of investments. Obviously, if the government put up their hand, I think commercial entities will as well.

Ms BURKE: It is sort of the chicken and egg—we do not have the price on carbon so it makes the market work difficult. At the same time, if we wait too long, all these things are going to start and they will not be new and part of this program. So one of the arguments is not to go ahead with this until—

Prof. Barlow : Until we have a price on carbon.

Ms BURKE: But there is a huge amount of hurdles to get through to that. That is the political reality that we have to deal with. From your perspective, is it worth while going ahead with this legislation now knowing that we do not have all the bits and pieces in place to actually make it commercially viable? It may be viable for other reasons but not that commercial reality.

Prof. Barlow : That is a very good question. We have thought about it as well. Our position is that, because of the contingent benefits, because you cannot treat greenhouse action litigation, sustainability and productivity on different days of the week, and farmers deal with them together every day, and you cannot turn the clock back, this is here now and they want to do it. I think the really important thing is to ensure that, if a carbon price comes forward, there are correct connections between that carbon price and credits generated in the carbon farm so that basically anything people generate enters the Kyoto market and does not enter a voluntary market. Most of the research we see from that—as per Garnaut's recent update report—says that it is likely to be quite thin. That is the evidence globally on voluntary markets. Mainstream markets, like the Kyoto markets, are not thin. I do not think we should wait but we should make every effort to ensure that actions under the carbon farming initiative go as much as possible to Kyoto credits and any price on carbon therefore becomes part of that market.

CHAIR: Professor Barlow and Professor Grace, do you wish to make any closing statement, or is there anything further that we have not covered that you would like to comment on?

Prof. Grace : The carbon price is, I think, critical to it. But where we have got the momentum and with the carbon farming initiative, the research, the extension and the productivity angles altogether, I think it will be very successful.

Prof. Barlow : Thank you for your time and for your questions.

CHAIR: Thank you both for appearing at the hearing today. The secretariat will send you a draft transcript of the proceedings. If there are any corrections or errors, please advise us. If you have any additional material that you would like the committee to consider please send it in as soon as possible.