lower project risks for issuance of carbon credits – Farmers benefit

Carbon Pricing was expected to increase farm costs by $3.2b in Australia at the fixed price of $23 per tonne CO2-e (increasing at 2.5% per annum for three years). Then after 28 August 2012: You may have been confused when the announcement from the government said we will synchronize with European Emissions Trading scheme by 2015 and effects will be felt immediately and most definitely from 2014 where we can expect our ceiling cap to be set by a European communities. This can be taken to be a positive step and as we (serious about economics) know economies of scale give more certainty to the market. One thing has not changed is the point where the market will fully transition to a flexible price determined by the market.

Being that Industry intelligence is vital for a successful business, it is right to ask questions and have data provided to be analyzed and have the facts assembled and crafted into a response. So without political spin we should give a bit of the background on Agriculture in Australia:

Agriculture accounts for about 15% of Australia’s total emissions, but it is notoriously difficult to narrow a number of the sector individual parts for what they contribute. It varies a lot and is in part why the Australian Government’s Clean Energy Plan for the carbon price does not apply to Australia’s agriculture sector, which means that farmers are not liable to pay a direct tax on carbon emissions. Farmers are also exempt from paying tax on their fuel consumption until 2014, when the government will begin to tax carbon emissions from heavy on-road transport.

Lets examine what CO2Land org also thinks is part of the reason agriculture is not applied to the carbon pricing, and it stems from the wording ‘carbon’. In Australia we legislated there are six greenhouse gases and each has different lasting affects on the global warming and climate actions. For instance:

  • Livestock farming is carbon which of which largely depends on how you count it and it can be greater than 21 times more potent than carbon dioxide and is attributed with at least 75% of agriculture carbon.
  • Pasture and grain growers’ account for at least 15% of the sector’s emissions. This is also very difficult to measure as much depends on the amount of fertilizer use, crop residue burning and harvesting activities.
  • Other factors that affect the sector are drought conditions, changes in livestock numbers, pasture quality and commodity prices affect on demand.

Therefore the issue for the industry with the carbon price is the indirect costs under the carbon price conditions, primarily in the form of higher prices for farming inputs and production. The rise in freight and fuel-based costs beyond 2014 will detract from the bottom line, as it will become more expensive to transport livestock and get fresh produce to market.  Now if the carbon price after 2014 is more likely to be stabilized by a more efficient global market scheme it should be reasonable to assume those price rises will be lower than predicted. Lets take a punt and say annual growth of agriculture production will increase or remain steady in 2014-15 and not decline by around 1%. This should indicate revenue impact of the introduction of Carbon pricing is now not as severe (it is worth noting that transport cost are around 16% of co2 emission in the farming product) and a more stable pricing mechanism will have direct downstream pricing benefits for farms. Therefore farmers should have a more relaxed view of the situation than previously.

CO2Land org was sent a notice that ( www.ibisworld.com.au ) IBISWorld published a special report on Carbon Pricing in June 2012 on the state of play as was seen at that time, and this in part formed this comparison to conclude the latest move to European Trading Scheme should be a good move. Reason: Likelihood of indirect costs not rising to the levels predicted and a near complete counter to the increase in on-road fuel costs from 2014. And, less discount on our buyers and sellers actions in forward sellers markets – lower project risks for issuance of carbon credits for developers.

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