Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
STANDING COMMITTEE ON RURAL AND REGIONAL AFFAIRS AND TRANSPORT
11/09/2008
Carbon sink forests

CHAIR —Good afternoon.

Senator HEFFERNAN —Did you hear most of that, Peter?

Mr Sykes —Just the last five minutes.

Senator HEFFERNAN —Righto.

CHAIR —Is there anything you would like to add on the capacity in which you appear.

Mr Sykes —I am appearing today as a farmer.

Senator JOYCE —Are you Peter Sylvester Sykes from down near Wagga?

Mr Sykes —Yes, next to Umbango, where you are very familiar—

CHAIR —Great, but Senator Joyce you might want to have that conversation when we have all hung up. We will move on. Mr Sykes, do you wish to make a—

Senator HEFFERNAN —He’s a rel of yours, mate!

CHAIR —Senator Heffernan! I am halfway through asking Mr Sykes if he wishes to make a brief opening statement before we go to questions.

Mr Sykes —Yes, sure. I suppose the reason for my interest in appearing before you today—and thank you for the opportunity—is that I think agriculture has moved to a point where we have far more opportunities and there are far more intelligent ways of dealing with climate change rather than saying, ‘Let’s just go and stick some trees in a paddock and that’ll fix everything.’ There is an amount of disagreement about when a forest sink, after it is planted, is actually going to start absorbing carbon from the atmosphere. Documents I have seen range from between eight years and more than 50 years. If we were to look at redesigning our agricultural systems to take advantage of sequestration of carbon in the soil, we would be able to provide more food for the world as well as providing sustainable and hopefully extra profitable sources of income for rural and farming families. Rather than having farms sold up to be planted with pine trees or blue gums or something else and ultimately infested with native weeds, noxious weeds and feral animals, there are smarter things that we can do. The last thing we need is more families leaving the country and moving to the city.

CHAIR —Mr Sykes, I know you were not referring to Senator Heffernan when you were talking about feral animals—but, on that note, Senator Nash.

Senator NASH —That was a bit cheeky, Chair!

CHAIR —I was just getting in first!

Senator NASH —On what you were just saying, Mr Sykes—

Mr Sykes —Just for the record, Mr Sykes is my father; my name is Peter!

Senator NASH —Okay, Peter! Your opening comment was about how we can do better things to put carbon in than putting trees in the ground. Could you give us a bit more detail on what those alternatives are? There are certainly members of this committee who have concerns about putting carbon sinks in prime agricultural land and giving a tax break as a result. Could you expand on what your thoughts and views are other than putting in those trees, which seems to be a very simplistic solution that is being thought of at the moment. What are the alternatives?

Senator HEFFERNAN —Could you take in that US stuff, Peter?

Mr Sykes —I am not sure how many of you are familiar with the place called the Chicago Climate Exchange.

Senator NASH —We just had it mentioned briefly. If you would like to give us some background on that first, that would probably be quite useful.

Mr Sykes —The Chicago Climate Exchange is, I think, the third largest carbon market in the world. It is a voluntary market and it has been built up over the last five years. It specialises in agricultural reductions. It has a number of products that you can use for offsetting. The most commonly used so far is one where farmers aggregate into, if you can imagine it, a wholesale lot of acres that go from till to zero till. They have a system where they have typed the soil and its capacity for sequestration around the country. So they can say, ‘Righto, if you are in Minnesota in this part, you will be able to sequester, say, 0.8 of a tonne of carbon per annum if you go from till to zero till,’ whereas if you are in Nevada you might only be able to sequester 0.2 of a tonne.

They have done that survey and they have used calculations to have an insurance amount that is withheld at the end of the contract so that in case something happens—for example, you have a fire—the amount paid to the farmer can be adjusted. Those markets are well developed. Currently, if you do some searching around on the internet you will find there are stories every day in American newspapers about XYZ farmer who has just got a cheque for an extra $72,000 because they have sequestered X amount of soil through their wheat cropping program.

The other one that they have is that, if you are a farmer and you go from unimproved pastures to improved perennial pastures, you are sequestering more carbon in the soil because, say, I am looking out my window here and I have got beautiful green rye grass paddocks and my next-door neighbour’s is all brown. In my next-door neighbour’s paddocks those plants have shut down, so they are not sequestering any carbon into the soil through the process of photosynthesis. If you go from an unimproved pasture to an improved pasture, they have a similar program where you get X number of credits for going from unimproved to improved. The improved pastures are working nine, 10 and 11 months of the year, whereas the unimproved are only sequestering for about four or five.

They also have another one which is for if you go from a set stocking regime. If you have 100 cows and 10 paddocks, you can put 10 cows in each paddock and leave them there. But if you go from that system to a system of rotational grazing—so you still have your 10 paddocks and you still have your 100 cows, but you put 100 cows in one paddock and then you move them on after X number of days—combined with improved pastures, the animals are on a more even and better quality plane of nutrition for a longer period of time. That process by itself can reduce the amount of methane emitted—and methane is 23 times more potent a greenhouse gas than carbon—by up to 70 per cent.

Again, all these things are happening in the States. It is a voluntary market and people are being paid for it. I think there are tremendous opportunities in Australia for farmers to have additional income sources through doing immediate action on climate change that is additional to what they would normally be doing, and it is something that can have an impact straightaway rather than waiting eight or 12 or 50 years. There is already around the globe a monumental push towards food miles. You have a situation in the UK where the supermarket Tesco, the bigger version of our Woolworths, have a carbon rating on each of their 26,000 SKUs or stock keeping units. For their stores—and I have already had approaches and discussions with people in the beef supply chain in Australia about this—they are starting to consider having supply arrangements with farmers who are low-carbon producers of beef, which can be verified through a traceability program showing that they are going from unimproved to improved pastures, that they are going from the set stocking to rotational grazing. People want to buy that, because the emission reductions that are happening on-farm are negating the food miles in getting a product to an export market.

Senator NASH —How many farmers in the States are involved?

Mr Sykes —Thousands.

Senator NASH —When did you say it started in the States?

Mr Sykes —About four years ago.

Senator NASH —I am interested in the comparison: nothing seems to be happening in Australia and we just get told how it is so hard to measure agricultural emissions and it all seems to be in the too-hard basket. Is there any interest at all in Australia in doing this?

Mr Sykes —There is massive interest in it. As far as being told that it is too hard, necessity is the mother of invention. There is some very interesting technology which has been developed in Canada. I am not a scientist and I cannot remember the exact name—I can supply it to you afterwards—but it is a reflective laser technology that you put on the front or the back of a tractor. You can drive it around a paddock, at whatever distances you want for measurements, and it will give you what the soil carbon levels are now, as well as all the other soil nutrient levels. So not only do you have a baseline so you can verify what your starting position is for soil carbon but it also gives you all the information you need for precision application of fertilisers. Then you can come back and say, ‘Righto, I’ve gone from a till system to a zero till system, and this was my baseline,’ and after that you can come back and say, ‘This is what the new soil carbon levels are,’ and you can be paid accordingly. The quality of payments that a farmer or any offsetter receives in any carbon market is directly related to the capacity to verify that reduction and the validation processes that go along with it. If you have a very accurate and highly validated soil carbon measurement system, instead of getting eight bucks a tonne you might be able to justify saying that the market moves up to 12 bucks or 16 bucks or 20 bucks a tonne.

Senator NASH —Did you say it is just attached on the front of the ute?

Mr Sykes —On the front of a tractor, and it has all the computers tied up to it. It has been developed in the last 18 months in Canada.

Senator NASH —What would be the cost of one of those units?

Mr Sykes —Because it is in the early stages it is still relatively expensive. I think the landed cost, I was last told, would be between $70,000 and $90,000 a unit. But obviously this is not the sort of thing that you would have sitting in the backyard of every farm. In the States they have a system where they have aggregators. They are the people who go around and pool the farmers together—so they would say, ‘Righto, Senator Heffernan is going to put a thousand acres into zero till, Senator Joyce is going to put another thousand acres in and Senator Nash is going to put another thousand acres in.’ Then they are all combined, so instead of getting retail discounts on what the purchase prices will be you are getting wholesale pricing. The aggregator gets a slice of that and then puts that contract over the five years into the Chicago Climate Exchange. Then they have verifiers, which is a new industry they have developed as a result, where people go around and actually audit to make sure that what people have said they were going to do has actually been done.

In Australia we have a few stock and station agency firms, agribusiness firms, who are ideally placed to be able to act as aggregators and verifiers because they have the stockies who are travelling out to people’s farms on a regular basis. So, for example, they would know whether Senator Heffernan is actually fulfilling his obligations under his contract to the CCX to go from set stocking to rotational grazing, because he is out there and they can see the process that is going on. They would know that Senator Heffernan has purchased X amount of fencing material to go through the process of establishing smaller paddocks to have a rotational grazing system. They would know that a farmer has bought X amount of improved pasture seed. They would know how much seed has been purchased if a farmer is going from till to zero till. So they can have high quality assurance of the scheme. They also have huge teams of agronomists who could have regionalised or branch-located these carbon measurement systems and, as they go around on a regular basis doing soil tests and checking on pastures and crops, they could whiz them around and get an accurate measurement of the baseline and subsequent levels of carbon in the soil.

Senator NASH —How did you get involved in this?

Mr Sykes —Again, necessity is the mother of invention. Climate change has had a very big impact on our farm. We have had seven years of drought.

Senator NASH —Whereabouts are you?

Mr Sykes —In between Tarcutta and Tumbarumba, at a gorgeous little place called Humula. The drought also had a very big impact on another business of mine. I have been involved in the voluntary carbon markets, carbon offsetting and that sort of thing for the last couple of years.

Senator NASH —Well done.

Senator BOSWELL —Peter, does the CSIRO believe that your way of doing things is actually storing carbon in the land?

Mr Sykes —I do not know whether the CSIRO would be the appropriate department with the expertise to give an answer to that.

Senator BOSWELL —We heard from the previous witness, who was talking on similar lines to you, that the CSIRO were not in agreement with storing carbon in the soil.

Mr Sykes —Well, you have also got the head of the IPCC—that Indian vegetarian chap, whose name I cannot remember—

Senator MILNE —Dr Pachauri.

Mr Sykes —who in one of his more recent speeches said that the world has underestimated the capacity of sequestration of carbon in the soil. He has suggested that it is something that needs to be given a lot more attention and a lot more urgency. If you look at the people who are doing practical things, such as Dr Jones and different people all around the world, they are on the ground doing things that are having an impact on the amount of carbon that is in the soil.

Senator BOSWELL —Just to cut to the chase, what we are investigating here is the proposition of putting tax breaks in for growing trees. What you are saying is that there is a better way of doing it.

Mr Sykes —To give someone a tax advantage to do something today that will not have an impact on the environment for between 10 and 50 years seems to me like lunacy.

Senator MILNE —Peter, you said you have been in the voluntary carbon market for a while. Are you selling soil sequestered carbon? What are you actually selling?

Mr Sykes —My capacity in the carbon markets is with the company in Sydney called Climate Friendly. They specifically deal in green power, Gold Standard and VCS credits, verified through the United Nations and through WWF, and they are solely in wind farms. At the moment there is not the capacity for people to be able to buy or sell agricultural credits.

Senator MILNE —I thought when you were speaking you were implying that you have been doing it with soil carbon, so that is why I asked.

Mr Sykes —I have just been researching it.

Senator MILNE —I am very familiar with Climate Friendly. The issue for me here is the transitional arrangements. Clearly this legislation is designed to give a tax deduction for planting trees, so you can actually see that and sign, and there is a cost for planting your trees.

What sort of transitional arrangements do you think would be appropriate so that, if a farmer decided to go from till to no till or to move to rotational grazing et cetera, there are going to be establishment costs in the way of fencing and all the rest of it. Do you think it is appropriate to have a tax deduction for that? How do you think it would work?

Mr Sykes —At the moment you are not providing a farmer with any more tax deduction than he is currently eligible for. They are able to claim tax deductions for pasture improvements, subdivision fencing, fencing repairs and those sorts of things, so there is no additionality as far as benefits that need to be given to the farmers go. The greater thing you could do, whether through legislation or something else, is encourage the implementation of a voluntary carbon market, similar to the CCX, which can be applied in Australia so that people can have the additional income streams of being able to sell these credits and get the money. I can see a time when you will have banks and some of these agribusiness firms who will be able to say, ‘Righto. Here are your input costs to go from till to zero till. We don’t want the money back; we want the credits back because we have a carbon book and we think carbon’s going to go from 20 bucks a tonne to 80 bucks a tonne. That’s how we’ll make our money.’ The main thing is to be able to establish a market where these transactions can take place.

Senator MILNE —Yes, and we discussed that with Dr Jones earlier. Whether there was any engagement with a voluntary carbon market was my first question. Thank you.

Senator O’BRIEN —Dr Jones gave evidence just before you today and suggested that, with a system of perennial C4 grasses and potential overplanting of grains and the like, there was the potential to completely offset Australia’s carbon emissions in the landmass currently used for grain production. What do you think the price of carbon would be if we achieved that?

Mr Sykes —The price of carbon would probably be largely unchanged because, if you look at the numbers, Australia globally is not a very large emitter. Even though it would be a fantastic outcome for us to be able to sequester our national emissions, I do not know whether there would be a large enough reduction in global emissions to have a huge impact on carbon pricing. It could be something that happened globally. From some of the numbers I have seen, if soil management systems and farming systems were changed to allow for more soil carbon sequestration, we could have a very big impact in a very short period of time in sequestering a lot more emissions than we currently are. I think if we do nothing or if we let this legislation go through and allow people to get tax deductions for planting trees that are not going to start significantly sequestering carbon for 50 years—that is the time frame when, as the Garnaut commission and other people have said, if we continue on a business as usual case, 85 per cent of the agriculture businesses in the Murray-Darling Basin will be gone—

Senator O’BRIEN —Where does your 50 year figure come from?

Mr Sykes —The Intergovernmental Panel on Climate Change has some data that says 50 years. There is some United Nations stuff that says the data is 50 years. I will try to find it while I am talking to you. That is the thing with trees. There is so much disagreement about the capacity for them to start sequestering carbon in any meaningful amount.

Senator O’BRIEN —Depending on the species some produce reasonably quickly I would have thought. Dr Jones suggested that the growing curve in the nine to 15 year growth period was probably significant.

Mr Sykes —Nine to 15 years is a lot further out than tomorrow.

Senator O’BRIEN —Yes, but it is a lot less than 50.

Mr Sykes —You will have to take up the 50 year data with the United Nations.

Senator O’BRIEN —So you are basing your evidence on something which is in United Nations material?

Mr Sykes —And the IPCC. I cannot touch the piece of paper that has the exact information on it.

Senator O’BRIEN —In terms of the Chicago Climate Exchange work, do you have a fix on carbon price being achieved by farmers? Is that known information?

Mr Sykes —The pricing for the Chicago Climate Exchange is exactly like being on the Australian Stock Exchange.

Senator O’BRIEN —So it is variable.

Mr Sykes —You have infinite amount of price discovery. Every possible financial instrument that is traded for interest rates, foreign exchange or stocks can be traded in carbon markets around the world today. You have options, swaps, forward contracts, spot contracts. You have put options, call options—the whole gamut that is currently there.

Senator O’BRIEN —In terms of an indication of pure sale options, are there any price indications there?

Mr Sykes —As in the price per tonne of carbon?

Senator O’BRIEN —Yes.

Mr Sykes —It varies from product to product. I think they range from between about US$6 to about US$14 a tonne.

Senator O’BRIEN —Is that something we could reasonably expect in Australia or is that dependent upon the make-up of the Carbon Pollution Reduction Scheme when it is produced?

Mr Sykes —Do not forget agriculture is not going to be included in the Carbon Pollution Reduction Scheme.

Senator O’BRIEN —I know it is not initially. It has been deferred until 2015, hasn’t it?

Mr Sykes —To be considered later. But what we are talking about is a voluntary market and the voluntary market is the one because the Carbon Pollution Reduction Scheme is only going to cover the 1,000 largest emitters whereas a voluntary market gives people the capacity to act immediately on climate change and to do something today. The secret to all of these things is again government supporting the establishment of a carbon market that is going to be fungible into, for example, the CCX.

Senator O’BRIEN —The forest industry can opt in or opt out. That is the plan as well, isn’t it?

Mr Sykes —I am not a big supporter of the forestry industry, so I have not focused on what their interests are.

Senator O’BRIEN —Thank you.

CHAIR —Thank you for your time and good luck.

[3.53 pm]