Carbon Farming Initiative – approved two landfill gas projects in Canberra

Two landfill gas projects declared eligible in Canberra

The Clean Energy Regulator has approved two landfill gas projects in Canberra under the Carbon Farming Initiative.

The Belconnen Landfill Gas Project and the Mugga Lane Landfill Gas Project use the Capture and combustion of methane in landfill gas from legacy waste methodology, and are located in Belconnen and Hume respectively. There are now 11 landfill projects approved under the Carbon Farming Initiative. All projects that are declared eligible under the Act are published on Act are published on the Register of Offsets Projects.

For more information about applying for the Carbon Farming Initiative contact the Clean Energy Regulator:

Clean Energy (Unit Issue Charge—Auctions) Amendment Bill 2012 – passed

The seven bills passed the Senate, and the Clean Energy (Unit Issue Charge—Auctions) Amendment Bill 2012, without amendments, by 34 votes to 28 on Monday night, 26 Nov 2012. The Australian ETS will link to the EU ETS and all that is required for law is Royal Assent.

What is a bill? A bill is a proposal for a law or a change to an existing law. A bill becomes law (an Act) when agreed to in identical form by both houses of Parliament and assented to by the Governor-General.

Reference source: http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r4896

Progress of the amendment bill include:

  • House of Representative introduced and read first time 19 September 2012 to six other presentations and the third reading agreed on 11 October 2012;
  • SENATE introduced and read first time 11 October 2012 to eight other presentations where the text of bill as passed both Houses was announced on 26 November 2012.

Some advocates for the carbon price are disappointed that this passage means the end of the $15 floor price of the original premise for the local scheme, and that argument can be respected.

Albeit the bill has passed relatively quickly and by the numbers, there is little or no support to be found with the executive of the opposition leadership. On ‘the far side’, excuse the reference to cartoon characterization, it is still preferred to retort to name calling and demonization of anyone with fortitude to promote change. The question that will remain until tested is: Will we regret tying ourselves to the EU scheme, as that scheme has shown weakness in its auction system and has required intervention to stay afloat?  CO2Land org will speculate the answer is we would be far more exposed if we did not take the step. We are not alone.

Apart from the deniers the evidence is we have to go with the system. This is further emphasized when most of the industries and the economies evolve around the need for the certainty. The ETS systems bring with them a market to focus on and give them a need for the market to plan for their future in the carbon constrained world.

It is still very perplexing as to why climate change deniers can say “a bigger con than ours as it has achieved zero except make some feel good”, “they don’t call her Juliar for nothing”.  ‘They’ can easily traced to the opposition and the rallying against the carbon tax and vowing to repeal it if in government.

The opposition tack is shallow and continues to describe the carbon tax as a shambles, despite no evidence of any magnitude of negative affects being demonstrated because of the price. The greater threat to energy prices is all gaming activities on energy prices, a lackluster energy regulatory regime and the need for revenue gains for cash strapped States. Posted on September 14, 2012 by co2land The cold hard facts on state finances can be taken from this table:

  NSW VIC QLD WA SA TAS
2011/12 -$940 -$811 na -$178 -$120 -$80
2012/13 -$1000 -$635 na -$284 -$400 -$120

Table: Estimated impact of GST reduction on State budgets, 2011/12 and 2012/13 ($m). Source: State budget papers

The greater danger is the A bot leadership is to do not a thing to genuinely address the need for certainty, other than promise to repeal the legislation and leave us isolated from the global benefits. The tragic comedy continues where one Nationals senator Ron Boswell said as quoted by the ABC on renewable energy targets and the carbon price driving up electricity prices. “Australia is in an expensive energy hole right now because … of the carbon tax, and it is time we stop digging”. No need to comment on that one, it answers itself as to what is the problem!

CO2Land org notes carbon pricing was one of the most significant changes to the Australian economy, it will be enduring but not endearing and it will be important for business to know the way to calculate the environmental cost of their activities. Otherwise they may be penalized by those places where emitters pay. We are not alone and not going to be alone. The EU ETS is followed by California’s first auction sellout – they have even found some businesses have experienced outstanding business performance in the carbon markets and plan awards ceremonies for same, and China’s planned expansion to position itself as number 2 ETS market ahead of California should give confidence to our businesses and innovators that understand the importance of carbon and to be a sustainable entity. Posted on November 14, 2012 by co2land “The official start for California’s Carbon Pollution Allowances purchase of permits at auction starts 14 November 2012.” In a previous story California’s ‘carbon market mandate’ posted on 9 October 2012 by co2land it was said “Looking at what the Californian’s have done: They have taken the approach that big business can be encouraged from polluting the environment”. The http://news.yahoo.com/california-sells-first-pollution-permits-222337650.html reports on 19 November 2012 that the sellout of 23.1M permits attracted $10.09 each.

If you need more, or need to know what all this really means to the two way linking of the EU ETC, the AU ETS and Carbon pricing following is the Federal Government’s link on the agreement

Download the PDF

Australia and European Commission agree on pathway towards fully linking emissions trading systems (88 kB)

 

 

SMART the two way difference!

We hear smart phone, meters, grids, systems all around us and we can be driven to distraction hearing this and not knowing what is really means. Our frustration includes that dictionaries do little to help us understand what SMART really means in the context of today. The context being SMART is more about what is deliverable through clever two-way communication.  But does that mean workable one-way communication is dumb?

Research suggests the first known uses of the term occur in the November 1981 issue of Management Review by George T. Doran (source Wikipedia). Now if we look at the objectives given by our source we find: “SMART / SMARTER is a mnemonic to guide people when they set objectives, often called Key Performance Indicators (KPIs), for example for project management, employee performance management and personal development. The letters broadly conform to the words Specific, Measurable, Attainable, Relevant and Timely with the addition of the words Evaluate and Reevaluate used in more recent literature.”

However, when we talk in terms of technology we note: “S.M.A.R.T. (Self-Monitoring, Analysis and Reporting Technology; often written as SMART) is a monitoring system for computer hard disk drives to detect and report on various indicators of reliability, in the hope of anticipating failures. When a failure is anticipated by S.M.A.R.T., the user may choose to replace the drive to avoid unexpected outage and data loss. The manufacturer may be able to use the S.M.A.R.T. data to discover where faults lie and prevent them from recurring in future drive designs.”

Then for our energy supply we note: In addition to growing concerns about the electricity grid’s robustness and reliability, the grid was designed and built with one basic objective in mind – keeping the lights on. Meanwhile, other concerns have become increasingly important in the political and public dialogue about the status and future of the electrical grid, particularly: Energy efficiency
- Environmental impacts
- Consumer choice.

Worldwide governments and utilities are investing in new technologies in order to keep up with demand for energy and build a grid that: Runs more efficiently
- Generates higher-quality power
- Resists attack
- Is self-healing
- Enables consumers to manage their energy use better and reduce costs
- Integrates decentralised generation (e.g., bioenergy, renewable energy. Gas fired), and storage (such as fuel cell) technologies.

In addition to meeting the need for reliable, high-quality power, these technologies are intended to meet the economy’s energy needs as efficiently as possible, optimizing energy consumption and related environmental impacts such as greenhouse gas emissions.

CO2Land org notes these technologies are often referred to generically as smart grid technologies. In this usage of Smart, the SMART grid describes a set of related technologies, rather than specific technology with a generally agreed-on specification.

Continuing on with SMART technologies these fall into five main areas:

  1. Two-way integrated communications: allow for real-time control, information and data exchange to optimize system reliability, asset utilization, and security.
  2. Sensing and measurement: evaluate congestion and grid stability, congestion and grid stability, monitor equipment health, detect energy theft, and support control strategies support.
  3. Advanced components: flexible alternating current transmission system devices, high-voltage direct current, first- and second-generation superconducting wire, high-temperature superconducting cable, distributed energy generation and storage devices, composite conductors, and “intelligent” appliances.
  4. Advanced control that enables rapid diagnosis of and precise solutions to specific grid disruptions or outages.
  5. Improved interfaces and decision support that reduce complexity so that operators and managers have tools to effectively and efficiently operate a grid with increasing numbers of variables.

Therefore it could be said Smart Grid is a two way communication system fundamentally concerned with the long-term sustainability of the system.

Then if we go back to SMART project management:

There is no point communicating if you do not want an effect. The effect you want to achieve must start with effective communication giving or developing a clear picture of what you want to achieve. At this point you could be evolving dumb communication as suggested at the start of this discussion – a one-way exchange keeping people informed and being supportive. The one-way communication could be reports, a newsletter or other required proforma. It may be elegant, stylish and easy to read or it might be rubbish – A scruffy report leaves the impression of a lack of control or lack of concern for what is good for the result.

To be smart in this context the communication must achieve change. That is the desired change and several key elements need to be incorporated. To start with, the most important element is:

The information needs to be Specific, Measureable, Achievable, Realistic and Time framed – SMART.

The second element is illustrate the reason why it is important TO YOU. If your audience does not believe you are feeling the need how can you expect them to understand the need.

The last element is to get mutuality. A communication that recognises the receiver can expect something of value for them too. Sometimes called WIIFM – What’s in it for me. It is said SMART people understanding WIIFM trumps altruism 8 out of 10 times.

Of course it must be ethic mutuality, and there is no point in communicating with someone if you don’t want change or an effect.

What does the formal classical description of smart refer to:

“smart  (smärt)

adj. smart·er, smart·est (the freedictionary)

1.

a. Characterized by sharp quick thought; bright. See Synonyms at intelligent.

b. Amusingly clever; witty: a smart quip; a lively, smart conversation.

c. Impertinent; insolent: That’s enough of your smart talk.

2. Energetic or quick in movement: a smart pace.

3. Canny and shrewd in dealings with others: a smart negotiator.

4. Fashionable; elegant: a smart suit; a smart restaurant; the smart set. See Synonyms at fashionable.

5.

a. Capable of making adjustments that resemble human decisions, especially in response to changing circumstances: smart missiles.

b. Manufactured to regulate the amount of light transmitted in response to varying light conditions or to an electronic sensor or control unit: smart windows.

6. New England & Southern U.S. Accomplished; talented: He’s a right smart ball player.

intr.v. smart·ed, smart·ing, smarts

1.

a. To cause a sharp, usually superficial, stinging pain: The slap delivered to my face smarted.

b. To be the location of such a pain: The incision on my leg smarts.

c. To feel such a pain.

2. To suffer acutely, as from mental distress, wounded feelings, or remorse: “No creature smarts so little as a fool” (Alexander Pope).

3. To suffer or pay a heavy penalty.

n.

1. Sharp mental or physical pain. See Synonyms at pain.

2. smarts Slang Intelligence; expertise: a reporter with a lot of smarts.

Are their other SMART’s out there? Check out this list of acronym, is there more?

Acronym Definition
SMART Self-Monitoring, Analysis, and Reporting Technology (hard drive feature; warns of problems before total failure)
SMART Self-Management and Recovery Training
SMART Science, Mathematics and Research for Transformation
SMART Start Making A Reader Today
SMART Simple Modular Architecture Research Tool
SMART Suburban Mobility Authority for Regional Transportation
SMART Small Missions for Advanced Research in Technology (NASA)
SMART Stormwater Management and Road Tunnel (project; Malaysia)
SMarT Save More Tomorrow
SMART Simple Multi-Attribute Rating Technique (software development)
SMART Sikh Mediawatch and Resource Task Force
SMART Stress Management And Relaxation Training
SMART Swatch Mercedes Art (Daimler-Benz automobile model)
SMART Sex Offender Sentencing, Monitoring, Apprehending,. Registering, and Tracking (US Department of Justice)
SMART Specific, Measurable, Achievable, Realistic, Timely
SMART System to Manage Accutane Related Teratogenicity
SMART Specific, Measurable, Achievable, Relevant, Time-Bound
SMART Simulation and Modeling for Acquisition, Requirements and Training
SMART Secondary Materials and Recycled Textiles Association
SMART Special Medical Augmentation Response Team (US Army MEDCOM)
SMART South Metro Area Rapid Transit
SMART Speed Monitoring Awareness Radar Trailer
SMART Satellite Mutual Aid Radio Talkgroup
SMART Specific, Measurable, Attainable, Realistic, Tangible
SMART State Messaging and Archive Retrieval Toolset (US State Department)
SMART Somatic Mutation and Recombination Test
SMART Save Money and Reduce Taxes
SMART Systemwide Mental Assessment Response Team (Los Angeles Police Department)
SMART Sustainable Model for Arctic Regional Tourism
SMART Special Malaysia Disaster Assistance and Rescue Team
SMART Special Military Active-Retired Travel Club
SMART Strategic Marketing and Research Techniques
SMART Sonoma-Marin Area Rapid Transit (California Bay Area)
SMART System Metric and Reporting Tool
SMART Specific, Measurable, Actionable, Relevant, and Timely (process metrics)
SMART Soundly Made, Accountable, Reasonable, and Thrifty
SMART Southern Modified Auto Racing Teams
SMART State of Missouri Alcohol Responsibility Training
SMART Smart Motorcyclists Attend Rider Training
SMaRT Sunnyvale Materials Recovery and Transfer Station (Sunnyvale, California)
SMART Somatotrophics, Memory, and Aging Research Trial (clinical trial)
SMART System of Measurement And Reporting for Technologies (Canada)
SMART Surface Mining Association for Research and Technology
SMART Shared Many-To-Many ATM Reservations
SMART Supply Maintenance Aviation Re-Engineering Team (Links maintenance and supply chains)
SMART Self-Measurement for the Assessment of the Response to Trandolapril
SMART Specific, Measurable, Appropriate, Realistic, Time-Bound
SMART Simple Maintenance of Arts
SMART Specific, Measurable, Attainable, Results-oriented, Time-based
SMART Sun Metro Area Rapid Transit
SMART Standard Modular Avionics Repair and Test (software)
SMART Statistical Methodology Analysis Reporting Technique (performance monitoring model)
SMART Senior Medication Awareness and Training
SMART Sunset Marketing and Revitalization Team (Rail advocacy group)
SMART SCSI Managed Array Technology (Compaq Smart Controller)
SMART Sailor/Marine American Council of Education Registry Transcript
SMART Students Making A Right Turn
SMART Securities Market Automated Regulated Trading Architecture
SMART Supportability Management Assessment Report Tool
SMART Sichang Marine Science Research and Training Station
SMART Safety and Mission Assurance Review Team
SMART Secure Messaging And Routing Terminal
SMART Structural Maintenance And Repair Team
SMART Stockton Metropolitan Transit District
SMART System Monitoring and Remote Tuning
SMART Susceptibility Model Assessment with Range Test
SMART Simulation and Modeling Anchored in Real-World Testing
SMART Sequential Modular Architecture for Robotics and Teleoperation (Sandia Labs)
SMART System to Motivate and Reward Teachers
SMART School Management And Record Tracking
SMART Shop Floor Modeling, Analysis, and Reporting Tool
SMART Service de Mesure et d’Analyse de La Radioactivité et des Éléments Tracés (French: Service Measurement and Analysis of Radioactivity and Trace Elements)
SMART Sales Marketing and Real Technologies Pty Ltd (Melbourne, Australia)
SMART Stockpile Materials Requirement Tabulator
SMART Solid Modeling Aerospace Research Tool
SMART Strategies for Motivating and Rewarding Teachers (Houston, Texas)
SMART Shipboard Modular Arrangement Reconfiguration Technology
SMART Southern Maine Alternative to Residential Treatment
SMART Special Medical Augmentation Reaction Team (US Army, Medical Command)
SMArt Sensor-Fuzed Munitions for Artillery
SMART Specific, Motivating, Achievable, Rewarding, and Tactical
SMART Service Management and Resource Tool (Covad)
SMART Short Maturity Analytic and Reporting Tool
SMART Small Motor Aerospace Technology
SMART Stress-Marginality and Accelerated-Reliability Testing
SMART Submarine Message Automated Routing Terminal
SMART Stock Management And Replenishment Tracking (B&Q)
SMART Supply Maintenance Assessment Review Team
SMART Space Mission Assessment for Reliability and Tactics
SMART Sensors Mounted As Roving Threads
SMART Student Managed Academic Resource Time
SMART Signaal Multibeam Acquisition Radar for Tracking (Dutch naval radar)
SMART Synthetic Multiple Aperture Radar Technology
SMART Sustainable Multi Species Agricultural Resource User Trial
SMART Stimulated Martensite-Austenite Reverse Transformation
SMART Stereoscopic Mapping and Rescaling Technology
SMART Super Music Action Ready Team (cartoons)
SMART Systems Management Analysis, Research & Test
SMART Service Management Analysis and Reporting Tool (Sprint)
SMART Shipboard Multipurpose Analysis and Reduction Tool
SMART Scalable Multi-Priority Allocation of Resources and Traffic (Newbridge)
SMART Soldiers Manual, Army Training
SMART Simulation and Modeling Assistant for Research and Training
SMART Simulation Model for Allocation of Resources for Training
SMART Skilled Motor Vehicle and Rider Training
SMART Ship’s Material Assessment and Readiness Testing
SMART System for the Management of Rejected Transactions
SMART Supply Management Army Retrieval Technique
SMART Standard Multiple Application Regulation Topology
SMART Submarine Modernization and Alterations Requirements Tool
SMART Swinger and Magnetic Analyzer with a Rotator and Twister
SMART Special-emphasis Material Action & Reporting Technique
SMART System Management & Allocation of Resources Technique
SMART Satellite Maintenance And Repair Techniques
SMART Southeast Michigan Astrologers’ Round Table
SMART Structures et Marché Agricoles, Ressources et Territoires (French: Agricultural and Market Structure, Resources and Territories)
SMART Southeast Michigan Area Rapid Transit (Metro Detroit public transit system)
SMART National Science and Mathematics Access to Retain Talent (federal grant)
SMART Security Management Architecture (Check Point Software Technologies Ltd.)
SMART Simple, Manageable, Achievable, Realistic, Timely
SMART Service Maîtrise des Risques au Travail (French: Service Risk Management at Work; Electricité de France)

Are you smart enough yet? If I was dumb I might say it is ART (attainable, result orientated and Targeted).  Because it is simply then a rating or action to occur if, rather than IF, THEN, ELSE!

Non-Kyoto Carbon Fund discussion paper

What is a position paper when it does not necessarily represent the views of the Government or any Government Minister – It could be a discussion paper and one very recent issue on the CFI related discussion is a position paper prepared by the Land Division of the Department of Climate Change and Energy Efficiency to promote discussion ahead of developing program guidelines for the Non-Kyoto Carbon Fund. The paper titled Non-Kyoto Carbon Fund Discussion paper for public comment – November 2012.

If you are wondering what does it mean, firstly you need to understand that the Non-Kyoto Carbon Fund is about abatement activities that do not count towards Australia’s emissions targets. It is about a market based incentive for CFI credits that do not have access to other markets. Equally important the Fund will not duplicate other grant-based or research and development funding provided under the Clean Energy Future Plan.

So why do it?  To encourage investment and promote innovation all related to reducing emissions or store carbon and would not have been contributing in other ways to Australia’s emissions targets. A big part of this objective is the ‘learning by doing’.

Looking closer at the Carbon Farming Initiative it is a legislated framework to ensure that abatement is real, permanent and additional. If you want to investigate what is thought of this statement you can read CO2Land orgs post  Real, Additionality, RECs

Posted on August 14, 2012 by co2land “Curiosity lead to checking out the reporting standard AS/NZS ISO 14064, finding it is silent on the word or term ‘real’ and completely avoids the topic of additionality, was fascinating given that you can’t even conceive of an offset without the concept of additionality!

CO2Land org now ponders: If ‘real’ cannot be a guarantee of a good project outcome. It follows that the use of the word or term ‘real’ can be seen as a initial or promised activity increase and not be seen as a guarantee of an increase in the carbon offset (it could be real activity and still lead to a decrease of carbon offsets). So if I say it was real at the time I acted; it was an act in good faith only. The issue with the word ‘real’ is it literally means the activity is a cause of change.

This lead to thinking of the impact this has on the Carbon Farming Initiative as legislated when the Gold Standard and Carbon Fix require that projects be “real”, but no international standard could explain what they mean by using the terms.

CO2Land org looked a little harder (we don’t want this post to be no more than ‘hot air’) and found:

◦    Specifically ISO 14064-2 (project accounting) does not include ‘Real’ because during development of ISO 14064-2 ‘Real’ was regarded as a programmatic rule/criteria, which is outside the scope of ISO 14064-2.

◦    ISO 14064-2 is a standard rather than a program

◦    ISO 14064-2 (Clause 5.4) specifies the following requirement in regards to additionality: “The project proponent shall select or establish, justify and apply criteria and procedures for demonstrating that the project results in GHG emissions reductions or removal enhancements that are additional to what would occur in the baseline scenario.”

◦    Additionality is incorporated into ISO 14064-2 is based on the core principles of ISO standards in general, i.e. that ISO standards not be a barrier to trade (WTO-TBT – anyone following development of ISO 14067 (product) will know this is a major issue). As such, ISO standards must be policy-neutral (extended to include program-neutrality). This is of course very important for market confidence.

◦    ISO 14064 deals with the concept of additionality by requiring that the GHG project has resulted in GHG emission reductions or removal enhancements in addition to what would have happened in the absence of that project. It does not use the term “additionality”…Thus the project proponent may apply additionality criteria and procedures, or define and use boundaries consistent with relevant legislation, policy, GHG programmes and good practice.”

◦    Although the concept/requirement of additionality is within the requirements of ISO 14064-2, the simple reason why the ‘term’ additionality is not present within the requirements of ISO 14064-2 is because of certain sensitivities/perceptions/politics of certain parties involved in the development of the standard. ”

If we press on with the currect discussion paper: You should be aware the Non-Kyoto Carbon Fund will only purchase credits issued under the Carbon Farming Initiative (CFI) and the department states the rigorous CFI integrity standards apply to both Kyoto and non-Kyoto projects.

To quote the Department: “The CFI is based on internationally accepted principles for ensuring that abatement is real, permanent and additional; and incorporates safeguards against adverse impacts — for example on biodiversity, water availability and employment. It allows landholders to generate carbon credits for abatement actions, whether or not they contribute to Australia’s emissions targets. All abatement — including Kyoto and non-Kyoto abatement — is subject to rigorous integrity standards, which cover:

  • Measurement:  each CFI project must use an approved CFI methodology to ensure that abatement is measurable and verifiable. CFI methodologies are supported by peer reviewed science and assessed by an independent expert committee (the Domestic Offsets Integrity Committee).
  • Additionality:  abatement must go beyond legal requirements and common practice within a comparable industry and/or region.
  • Leakage:  measurement methods must account for leakage and variability and use conservative assumptions.
  • Permanence:  sequestration from establishing trees or building soil carbon must be permanent.

The CFI is administered by the Clean Energy Regulator. It is supported by legislation and includes measures to minimise fraud and dishonest conduct. The CFI framework gives buyers confidence that offsets make a genuine contribution to climate change mitigation. “

Co2land org does not intent to verbatim the paper and you can easily get a download of  the discussion paper at:  http://www.climatechange.gov.au/government/initiatives/carbon-farming-initiative-non-kyoto.aspx .

But if you prefer we can explain what is Kyoto versus non-Kyoto activities. Kyoto protocol was ratified by Australia in 2007 and we agreed to to limit our national emissions in the period 2008-2012 (the first commitment period) and the Government has recently announced its intention to join a second commitment period, consistent with our domestic commitment to reduce emissions by 5 per cent from 2000 levels by 2020.

The Non-Kyoto Carbon Fund promotes land sector abatement that does not contribute to Australia’s internationally committed emissions targets, but represents genuine abatement nonetheless. Some non-Kyoto activities are likely to transition into the Kyoto framework (or its successor) over time.

The Kyoto Protocol establishes an internationally-agreed framework for measuring and reporting greenhouse gas emissions. Australia ratified the Kyoto Protocol in 2007, agreeing Land sector activities that contribute to Australia’s Kyoto Protocol emissions target (Kyoto activities) include:

  • activities that reduce agricultural emissions;
  • reforestation (land that was clear of forest before 1990); and
  • avoided deforestation (those present in 1990).

Under a second Kyoto Protocol commitment period (from 2013), it will be mandatory to account for forest management.

Rules:

* The carbon pricing mechanism allows CFI credits from Kyoto activities can be used as offsets.

* You can use the CFI to credit abatement from activities that do not currently contribute to Australia’s Kyoto Protocol emissions target (non-Kyoto activities).

* Credits generated from non-Kyoto activities will be eligible under the Non-Kyoto Carbon Fund, but cannot be used as offsets under the carbon pricing mechanism.

Transitioning activities into the Kyoto framework

  • International climate change negotiations are ongoing. What we have the moment is an intention to join a second commitment period.
  • Forest management and other voluntary land sector activities were not followed in the first commitment period because of risk. Risks that the gains from carbon sequestration could become losses from natural events, such as bushfire and drought. New provisions allow countries to exclude emissions from major natural disturbances when accounting for forest management and reforestation.
  • Accounting for forest management will become mandatory for parties under a second Kyoto Protocol commitment period.
  • Other land sector activities — including the storage of carbon in agricultural soils, grazing land management and the restoration of wetlands — will remain voluntary. Or at least until the Government assesses the impacts in Australia’s national accounts.
    • If activities enter the national accounts, credits from those activities would become allowable offsets under the carbon pricing mechanism and would no longer be eligible under the Non‑Kyoto Carbon Fund.
    • Fence sitters will be delighted. There will be arrangements to help stakeholders to manage uncertainty around the timing of any transition.

What happens if non-kyoto activities are brought into the Kyoto framework? The proposal is :  A voluntary opt-out clause would allow Non-Kyoto Carbon Fund participants to choose to sell to other buyers, if activities become eligible offsets under the carbon pricing mechanism.

What happens from here?  “The Department of Climate Change and Energy Efficiency will continue to consult with stakeholders on the design of the Non-Kyoto Carbon Fund. Interested parties are encouraged to make submissions on the proposals outlined in this discussion paper.

Draft program guidelines will be published in the first half of 2013, for further stakeholder comment. This will be followed by the release of final program guidelines prior to program commencement.”

In the mean time, if you are an interested stakeholder – Submissions are accepted until 14 Dec 2012 from stakeholders. Follow the full discussion and make your comments as described and email to cfi@climatechange.gov.au .

issue of waste disposal – e-waste

An outer Sydney council kerb-side collection truck did pick-up and crush the e-waste with all else. The thought was then: In this digital era we’re all linked to e-waste and need to understand it, the problems and do more than puff about what to do to implement solutions. Why is it so difficult to get anyone to care?

World wide policy makers acknowledge the issue of waste disposal is complex and poses challenges that relate directly to cost ($), and the measures of cost are viewed as a high political point despite sustainability and environmental issues having longer-term effects that affect viability. It is notoriously complex, and we listen to the excuses and catch cries of our thought leaders along the lines it is the system that is the problem, and major corporations need to take more responsibility for their products. You might also hear that consumers are to blame and it is their needs that generate the e-waste.

CO2Land org was pondering the conundrum of responsibility and took note of a post from 6 Heads (http://6-heads.com/2012/11/10/beyond-responsibility-2-0-insights-from-brazil/) and the follow up links to their argument on responsibility.

They talk of an alumni event at Imperial College London. Centered on the politics of climate change and how we need to move discussions beyond responsibility to get the positive collaboration levels needed.

Critical to the issue of responsibility is the end of life processes and when e-waste needs to be treated appropriately. That is the need to appropriately dismantle it, organize the different components, and the process and policies of reuse and recycling.

6 Heads says responsibly for this e-waste end of life phase takes into account two key steps: storage and disposal.

“Storage influences the amount of electronic products entering the waste stream before they can be appropriately treated. Nokia published survey results on the end-of-life of mobile phones, which revealed the difficulty in collecting phones as nearly 50% were kept in home drawers, and merely 5% were collected for recycling. This delay caused by storage makes collection for recycling difficult, and minimises opportunities to substitute virgin materials through recycling.”

Then in discussing Disposal:

“Once an item is thrown away, it should hopefully enter the recycling system. The recycling system is made up the following processes and the effectiveness of recycling is determined the weakest link. Often, the weakest link is the disposal of e-goods, which is closely tied to our behaviour.”

CO2Land org notes they are saying the weakest link to processing e-waste is collection.  No, it is not that simple, and there is another problem, albeit the weakness is collection the business of e-waste exists and comparative advantage of lesser-developed countries is enticing illegal exportation of e-waste. 6 Heads write, “countries like India, Pakistan and China, as this is the cheaper option. In fact, over 80% of the world’s e-waste is either dumped, landfilled or illegally shipped to developing countries where it is dismantled.” So we can then conclude The complexity of this industry is that costs entice low recycling rates and collection and then disposal determines high recycling rates. Then to avoid costs the cycle, at this time, is mostly e-waste is produced by higher standard of living countries and processed most likely by developing countries.

When considering responsibility, consider the lack of strong incentives, lack of an easy disposal system and low awareness among consumers and that behaviour is shaped and limited by the systems that surround us. The evidence is that most consumers are not aware or able to determine whether their e-waste is safe and what is the appropriate disposal methods – then think of the truck driver and offsider in Sydney. Why did they not know what was the complexity of their work. It does not matter how easy or hard it is too understand, they at least should be given good information to know what is happening because of the work.

Following is a brief insight of the story ‘Beyond responsibility 2.0 – insights from Brazil’, the measure may hold the answers:

“So how to tackle this phenomenon? Ideally, we want a solution that makes returning defunct and undesired electronics easy and cheap.

The EU Waste Electrical and Electronic Equipment Directive (WEEE) is a flagship policy that holds producers responsible for the collection e-waste. The systems put in place for this to happen can take many shapes and form, from collection points to buy-back schemes, the opportunities for returning e-waste are improving. What’s more, the need to divert e-waste from landfill is giving rise to business opportunities as companies like Mazuma and Envirofone deliver services to individual consumers and entire organisations.

But ultimately consumers will also need to raise the bar and play the role of active environmentally responsible citizens. We bear a social responsibility; we also need to bear an environmental responsibility.

Innovatively, Brazil has made all stakeholders along the lifecycle of electronic goods responsible for ensuring that it is appropriately returned to the manufacturer. From the consumer, to the retailer, the distributor and manufacturer, by law all of these stakeholders are required to ensure that e-waste enters the recycling system and is diverted from landfill. The National Solid Waste Law is the first to hold all actors accountable, and is a huge step towards environmental citizenship and solving sustainability through holistic means.

Furthermore, Brazil has also introduced a national programme to driver greater environmental citizenship. The Plano Nacional para Produção e Consumo Sustentávebrings together the public, private and civil society sectors in a national effort to increase environmental awareness and responsibility. The effects of the policies remain to be seen, but one thing is clear: Brazil has moved towards a more holistic definition of responsibility and is making efforts to mobilise all affected parties in an effort to advance to more sustainable behaviour and technologies.”

second largest carbon market in the world – kick-off

The official start for California’s Carbon Pollution Allowances purchase of permits at auction starts 14 November 2012. The occasion is described as historic and obliges the state’s biggest greenhouse gas emitters― like power plants and large manufacturers to participate and is expected to pump billions of dollars, in the next year, into California’s economy.

In a previous story California’s ‘carbon market mandate’ posted on 9 October 2012 by co2land it was said “Looking at what the Californian’s have done: They have taken the approach that big business can be encouraged from polluting the environment, and they can be simultaneously funding green industries through an auction permit system. The move is under the California state passed Assembly Bill 1532 (AB 1532), also known as the “carbon market mandate.” It is labeled as a boon for the state, environmentally and financially. Significant fees are levied to major corporate polluters, and those fees are invested into eco-friendly businesses that reduce greenhouse gas emissions. The state aims to reduce its greenhouse gas emissions by 80 percent by the year 2050.”

Then more recently on 12 Nov 2012, EcoWatch org posted  “Four Facts About California’s First-Ever Carbon Auction” focused on a post by Emily Reyna about the Environmental Defense Fund. In the preface she referenced President Obama’s remarks about action against a “warming planet” and said all eyes will be on California’s first ever cap-and-trade auction for pollution permits, and it will be the second largest carbon market in the world. This market is second only to the European Union Emissions Trading Scheme.

The risk for the auction is low according to the author and even individuals can buy if they wish, and a practice run was held in August 2012 to test the systems.

She offers more information about the nuts and bolts of the auction can be read here, and directly quoting the view of the author on the claims of the program:

“1. This is the best designed cap-and-trade program in the world
California has the good fortune of learning from predecessor cap-and-trade programs like the European Union Emissions Trading Platform, the Regional Greenhouse Gas Initiative, and the Acid Rain Program, just to name a few. Key elements of California’s program include giving free allowances to industry in the beginning years to help with transition; letting entities bank allowances for future use; and establishing an allowance reserve in case prices exceed a certain value. All help keep carbon prices more stable and make for a well-functioning market.

2. A price will be established for carbon, but that will vary as the program evolves
The California program will include auctions four times a year through 2020—32 more times after November 2012. As such, the number of participants, the settlement price and other results of the first auction may not necessarily predict the activity of future auctions. Over time, the market will change and both prices and participation will fluctuate as the cap reduces and businesses decide how best to participate.

3. Money from the auctions will be used to invest in California’s clean energy future
Proceeds from the auction must be invested in ways that further the goals of the law—the Global Warming Solutions Act of 2006 (AB 32). Though these investments are scheduled to start in the next fiscal year, a specific investment plan is still underway and is being guided by two bills passed at the end of California’s legislative session. Likely project categories include renewable energy, energy efficiency, advanced vehicles and natural resource conservation. In addition, 25 percent of proceeds must be used in ways that benefit disadvantaged communities. These investments will boost clean tech in California, improve air quality and create jobs.

4. California’s leadership will serve as a launch pad for other programs
California is the ninth largest economy on the planet, and the world is watching. No state or country can stop climate change alone, but California’s environmental policies have a history of success and replication, including clean car, clean fuel and energy efficiency standards that have saved consumers across the U.S. hundreds of billions of dollars in avoided energy purchases. If the past is any indicator, California’s rich history of leading the nation on responses to critical environmental problems, while delivering wide ranging benefits, means the U.S. is on the brink of something special.

A public notice of the auction results will be released on Monday, Nov. 19, 2012, and will be posted to both the Air Resources Board and auction website.”

CO2Land org offers that you might like to visit EcoWatch’s CLIMATE CHANGE page for more related news on this topic.

Farm related posts – Production, Landcare, Investments

Farmers make up less than 1% of the Australian population today and feeds 600 people – in 1950, an Australian farmer fed 20 people – in 1970, the farmer fed 200 people. Source: Lynne Strong, Bega ABARES Regional Outlook Conference 30 Aug 2012.

Artificial fertilizer costs too much and the dairy industry is returning to the use of nitrogen fixing perennial clovers in its pasture mix to reduce its greenhouse gas footprint. Source: Joanne Bills, Bega ABARES Regional Outlook Conference 30 Aug 2012.

The global dairy trade is increasing every year by between 9-10 billion litres of milk – equivalent to the size of the entire Australian industry each year. Source: BRW 12 July 2012.

A Tasmanian dairy farm has Australia’s first rotation platform that milks 24 cows without human involvement – separate robots prepare and clean the teats, attach the suction cups and disinfect the teats after milking. Source: BRW 12 July 2012.

Warrnambool Cheese & Butter operates the largest and most efficient dairy processing site in Australia – Bega Cheese owns 17% of the company. Source: AFR 03 Nov 2012.

Research in the UK has found that organic farms are less energy intensive than conventional farming – but they are also less productive – that means organic livestock have higher greenhouse gas emissions per unit of milk or meat. Source: NRM on Farms 04 Sept 2012. 

Dr Carole Hungerford of Bathurst links the health of the population to the health of its food – she says that you can’t get healthy animals from unhealthy land – she relates disease and illness to deficiencies in soils – in turn creating deficiencies in foods – she notes that 1 Australian dies every 2 hours from bowel cancer. Source: National Landcare 04 Sept 2012.

Asa Walquist, writer on rural affairs, says that animal products supply one third of the world’s protein – if livestock were eliminated, half as much again of vegetable protein crops would have to be produced to replace meat – but the shift from pasture to cropping would lead to a reduction in soil carbon – increasing soil carbon will be critical to Australia’s future carbon balance – Walquist says that the most effective way to increase carbon levels in soil used for agriculture is to return some crop land to well-managed pasture, preferably native pasture. Source: NRM on Farms 04 Sept 2012.

In the Western Sydney Parklands of over 5,000 hectares, 500 hectares have been reserved for urban farming – small plots are being leased to farmers to keep a food basin close to the capital city. Source: SMH 27 Oct 2012.

Financial losses from events related to weather in Australia have risen 4 fold over the past 30 years according to reinsurance corporation Munich. Source: SMH 27 Oct 2012.

60% of Australia’s researchers work in universities – the highest percentage of any modern economy. Source: AFR 03 Nov 2012.

The driver of the growth will come from improvements in productivity – labour productivity per person in China is only 20% of that of the US – in India and Indonesia it is about 10%. Source: AFR 29 Oct 2012.

Over the next 20 years almost 9 out of 10 new middle-class consumers worldwide will emerge in the Asian region. Source: AFR 29 Oct 2012.

Asia will be home to 4 of the 10 biggest economies within 13 years according to the Asian Century White Paper – China, India, Japan and Indonesia. Source: AFR 29 Oct 2012.

Between 2005 and 2011, US-based corporations invested $550 billion in Australia compared with $20 billion from China-based companies. Source: The Australian 16 Aug 2012.

Chinese consumers have developed a liking for Starbucks, pizza, Haagen-Dazseven and even Santa – they prefer western brands to domestic competitors. Source: The Deal Aug 2012.

95% of Chinese investment in Australia over the past 6 years was made by state-owned enterprises – nearly $50 billion over the last 5 years and mainly in mining and energy. Source: SMH 25 Aug 2012.

Chinese investment in Australia dropped by 51% last year to $19 billion – Australian investment in China grew by 278% to $17 billion. Source: The Australian 26 Oct 2012.

Unilever’s CEO, Paul Polman, thinks that for the next few years the US will be more internally focused – and that China and India won’t be willing to step up and assume the responsibility that comes with size – he believes that this creates a major opportunity for responsible companies to step up to be a force for good. Source: AFR Boss July 2012.

Unilever’s targets for 2020 are: to help more than 1 billion people improve their hygiene habits and bring safe drinking water to 500 million people – and halve the greenhouse gas impact of the company’s products across their lifecycle, from sourcing to consumer use and disposal – also to halve the water consumption associated with the consumer, particularly in countries that are populous and water-scarce – plus halve the waste associated with the disposal of products. Source: AFR Boss July 2012.

Unilever currently sources 10% of agricultural raw materials sustainably – by the end of this year it aims to source 30% – by 2015 50% – and by 2020 100% – by 2020 it also aims to link 500,000 smallholder farmers and small-scale distributors into its supply chain. Source: AFR Boss July 2012.

The Indigenous Land Corporation has gained approval under the Carbon Farming Initiative to earn up to $500,000 a year by selling carbon credits from projects combating savannah wildfires on its Fish River property south of Darwin. Source: The Age 02 Nov 2012.

  • CO2Land org queries the Fish River story and asks where this number comes from as it is unlikely in free trade the price will be higher than $AU10 for some time, and the Government itself in a media release said the number of credits generated from the exercise is 20,000 per annum – simple arithmetic = $200,000. It is most likely the number of $500,000 is a Carbon Tax transitional number and not a continuing expectation.  You might notice we posted Unfinished business, The EU ETS continues (Posted on July 17, 2012 by co2land). The story is about the need of the managers to artificially prop up the price after falling values. “To counter this the European Commission proposes to withhold permits and boost prices by “backloading” auctioning. That is delaying sales due next year until later in the 2013-2020 trading phase. This strategy is designed to maintain the EU carbon prices at no lower than €8.” It follows that Australia has elected to follow the EU ETS and make a transition from the Carbon Price (Carbon Tax) to the market.

Co2Land org thanks Garry Reynolds Caring for our Country National Coordinator, Business and Industry – for the inputs.

Indicators of hope – Environmental and Sustainability

In the 2012 victory speech President Obama call out “the destructive power of a warming planet”. It is reported it was more than words and some action will come from the make-up within the state houses and Congress from this election.

In a story along a similar vein Kate Sheppard for Mother Jones, part of the Guardian Environment Networkguardian.co.uk, Friday 9 November 2012, wrote about wins and the people that will champion the changes. These being: Jay Inslee – Washington State’s new governor; Martin Heinrich – New Mexico’s next senator; Angus King – Maine’s next senator; Pete Gallego – the next congressman, Texas’ 23rd District; Carol Shea-Porter – congresswoman, New Hampshire’s 1st District

Directly quoting Sheppard:

“1. Jay Inslee, Washington state’s new governor. Inslee, a Democrat, who has represented Washington in the House of Representatives since 1993, has long been a champion of renewable energy and sound environmental policies. In 2007 he coauthored the book Apollo’s Fire: Igniting America’s Clean Energy Economy, on that very subject. He was a member of the Select Committee on Energy Independence and Global Warming (back before the Republicans nixed it) and the co-chair of the House Sustainable Energy & Environment Coalition. He was also a key figure in shaping the climate bill that passed the House in 2009. As governor, he has pledged to continue that leadership.

2. Martin Heinrich, New Mexico’s next senator. Democrat Heinrich defeated Republican Heather Wilson in the race to succeed retiring Senator Jeff Bingaman. Heinrich authored the Clean Energy Promotion Act, a bill that would have expanded the number of renewable energy projects on public lands. (It didn’t pass, but it was a nice idea.) Before joining Congress he was a board member of the New Mexico Wilderness Alliance and was appointed to serve as the state’s Natural Resources Trustee, who oversees the assessment and protection of the state’s resources.

3. Angus King, Maine’s next senator. King, an independent, is drawing attention because he won’t say whether he plans to caucus with the Democrats or the Republicans. But environmental groups are certain that he will be a strong voice for climate action, based on his record as governor of Maine. After leaving office, he went into the wind energy business, building a 50-megawatt wind farm in Oxford County. He won endorsements from the League of Conservation Voters and the Sierra Club.

4. Pete Gallego, the next congressman from Texas’ 23rd District. Gallego, a Democrat, defeated Republican incumbent Quico Canseco in this very close House race that featured fights about Jesus and a rare, eyeless spider. An outside group sent a mailer to voters accusing Gallego of siding with “left-wing extremists” in the debate over protecting this spider’s habitat from the construction of a new highway. Gallego won the endorsement of the League of Conservation voters based on his record of, in his own words, promoting a “robust, environmentally-friendly economy.”

5. Carol Shea-Porter, the once-and future-congresswoman from New Hampshire’s 1st District. Shea-Porter served two terms in the House but lost her seat to Republican Frank Guinta in the tea-party surge of the 2010 election. She reclaimed it on Tuesday, rallying support with a poignant appeal for action on global warming: “If Americans want to fix this climate change problem, they will first need to fix Congress in November.””

Co2Land org shares that many people will breath more easily at hearing there are indicators of bi-partisan support and the appointing of persons that care accordingly after the US presidential election.  Our friends have indicated they are happy to hear there are words saying we will work together, that governments will govern, and do more than just put bumper stickers on our possessions.

Witnessed – two genuine headship contenders

Tonight ya’ll, unless you are under a rock, witnessed the two most important speeches in recent history. The President of the United States of America and the challenger. The inspiration is a better world, a place where we can expect our children will reach their potential and BEST OF ALL a guarantee we can hope they will have a future.

We can make a difference, don’t give up.

 

 

Deciding to be or not to be – agricultural production

In a rural neck of the woods trouble is brewing, land values are going too high! A farmer was willing to participate in CFI, albeit for a modest return. In light of stock holdings being low in the district the idea of leasing the neighbours land was attractive. Until someone decided the Internet was a good place to advertise an enthusiastically priced land sale.

Why is this important? Because everyone then develops higher wealth expectations and the issue is the inputs become higher and the price consumers are willing to pay for the agricultural and livestock remains low.

If we accept this will happen regardless, we need to re-evaluate the purpose and future in terms of commitment to incentives. But first we need to determine the price that could be and what the market will withstand. Beef and Central (www.beefcentral.com) ran an excellent story on: What value is a fair market price to pay for rural land? Written by Michael J. Vail, Tre Ponte Corporate, Brisbane 26 Oct 2012. Verbatum “Capital Budgeting for Investment, using the Discounted Cash-Flow (DCF) Method, and Net Present Value (NPV)”

Quoting: “It is important to understand the methods used by sophisticated and experienced business-people in the world of finance and economics, both here in Australia and overseas, when making large-scale capital expenditure budgeting decisions; whether it be for investments below one million dollars or up to several hundred million dollars.

One excellent method which is technically sound, and is supported by courts when deciding cases, is the Expected Net Present Value of a Future Expected Cash-Flow Income-Stream, also called Discounted Cash-Flow (DCF) Analysis.

When finance and economic analysis is in

progress, the concept of ‘flows’ is used, to show where the money goes. Money flows ‘in’ or ‘out’, with Net Cash-Flow available to pay dividends to owners of capital.

The basic premise is as follows, you:

1. Understand a business’ past cash-flows (both in and out),

2. Understand the nature of the income cycle,

3. Understand the cost structure of the business,

4. Understand what influences (both internal and external) the business model is sensitive towards,

5. Understand the accounting and economic break-even points, for sales dollars and sales quantity,

6. Understand supply and demand issues, at the micro and macro level, for this type of business, and

7. Have a view of the future, and for the business.

8. Make assumptions (which are documented), for each line of the cash-flow.

9. Project the cash-flow forward in time for three years, using zero-based budgeting; with the balance of the current year, plus one full year, shown month-by-month, and then two further years shown on an annual basis.

10. Identify and understand the risks of the project, and, whilst mitigating where you may, come to a conclusion whether the business is more or less risky than the market (using a proxy company where you can).

11. Derive a Before-Tax, Discount Rate, which fully describes the expected risk in the project going forward over the life of the project (eg Opportunity Cost of Capital).

12. Do not use the Weighted Average Cost of Capital (WACC) method to derive the Discount Rate, unless there is an appropriate amount of equity ‘hurt-money’ on the table, and the owner’s residential property is not being used as collateral for any loans; as evidenced in the balance sheet. Otherwise use an Opportunity Cost of Capital proxy, such as the Borrowing Rate plus a Margin-of-Safety.

13. Insert the Discount Rate into the Present Value (PV) formula applicable to the circumstance, and derive a Multiple.

14. Apply this Multiple to the Earnings Before Interest and Taxes (EBIT) figure from the cash-flows above, bringing these future cash-flows back to a single number, as it would be in the present-day, discounting for time and risk.

15. A way to think about it is; if I was offered a dollar today, or a dollar in one year’s time, and the opportunity cost of not taking the dollar today is 10pc, which will I prefer? If I take the dollar today, and put it in the bank, where I can earn 10pc, I will have $1.10 in one year’s time. So, if I wait, I will be $0.10 out of pocket. Conversely, how much would I have to invest today to receive a dollar in one year’s time? The answer is $0.91 ($1.00 / 1.1). A rational person will choose to take the dollar today.

16. This is similar to what is termed a ‘perpetuity’; where an amount is “grossed-up” to what it might look like ‘at the end-of-time’.

17. Take one dollar and invest it ‘perpetually’ at 10pc per annum, and it becomes $10.00 ($1.00/ 0.1); however, when you calculate the number of years (n) to ‘perpetuity’ ($10 = $1 x (1.1)n), it is only 24-years and 58-days. Granted, this is a long period of time, though it is hardly what we imagine as perpetuity; whatever that means. However in our modelling, some assumptions are made.

18. Another example: If $1.00 @ 25pc in perpetuity equals $4.00, then the time to perpetuity equals 6.212567-years (n = log 4 / log 1.25), or 6-years and 78-days.

19. So we may observe that as perceived risk rises, the pay-off horizon shortens; or the PV shrinks. The converse is also true. This is an example of the risk/return trade-off; as there is an inverse relationship (and therefore a negative slope) between them.

20. This adjustment for interest income (or expense), is referred-to as the ‘time-value-of-money’.

21. Another concept to understand in relation to NPV analysis (where positive NPV projects are acceptable investments) is the question, what is the hurdle rate of return (IRR), or the maximum borrowing-rate (less a Margin-of-Safety), where NPV equals zero?

22. A rational investor will surely pay no more than the number this discount hurdle rate equates to under the assumptions given; yet if the long-term view of interest rates over the term of the project is less than this hurdle rate, one will see a higher NPV and is more likely to invest.

23. And if expected EBIT increases, due to better management or market conditions, then the NPV will also rise.

24. A positive side effect of a higher EBIT as a percentage of Revenue, is that perceived lending risk will also fall, leading to lower risk premiums being applied.

shall illustrate with an example.

If rural, pastoral and grazing land in the Blackall/Tambo Shire of Central Western Queensland, in large part, has an average carrying capacity for a cow-and-calf unit of 1:21-Acres, then the carrying capacity of the cow alone is 1:14.69-Acres (if weaning percentages are 80pc and bulls are joined at 3pc).

If a Margin-of-Safety of 10pc is added-on to this carrying capacity, then the number becomes 1:16.15-Acres per cow (Dry Unit Equivalent).

To arrive at a fair estimate of market value, for what this parcel of land is worth on a per-Acre basis (Walk-In, Walk-Out, including stock, plant and all things necessary for the continuing operation of a Going Concern enterprise), you should request trading and profit and loss statements from the vendor (under signed Confidentiality and Non-Disclosure Agreements) going back at least five years, and the lodged income tax returns which accompanied them. This is an important step as a part of the data verification process.

There may well be resistance to this request from the vendor, as this data is of a private and sensitive nature. However this level of disclosure, is what everyone else in the real world complies with, to ensure there is full-information on the table for a prospective purchaser to review.

The production of same gives the purchaser some higher level of comfort around the numbers, and therefore a lower level of risk premium will be applied in the NPV analysis. Also, where there is un-certainty beyond rationality, lenders will also put a higher risk premium on any funding requirements.

To continue with my example, I will assume the following inputs and equations:

1. A purchaser will not borrow more than one-half of the expected market value of the total adult cattle herd.

2. A purchaser will not borrow more than 20pc of the total Asset Value of the enterprise including all things necessary; including the land component.

3. The parcel of land is around 36,000-Acres in size.

4. The average market value of the herd is $850.00 each. (It should be around $1300.00 per Head.)

5. The average adjusted EBIT, over the period covering the past five years, and expected over the next three years, is $450,000.

6. The carrying capacity, as calculated above, is 1:16.15-Acres (Dry Unit Equivalent).

7. That an appropriate regression equation to calculate a ‘Bare of Stock and Plant’ Price for comparison, may be:-

• Y = $770.00 x (X) -0.717,where ‘X’ equals Carrying Capacity expressed as ‘Acres per Beast’.

8. That an appropriate regression equation to calculate a ‘WIWO (Operating)’ Price for comparison, may be:-

• Y = $1,417.30 x (X) -0.86,where ‘X’ equals Carrying Capacity expressed as ‘Acres per Beast’.

9. That the average Opportunity Cost of Investment is 9.5 percent per annum (Compound).

10. That a purchase should be looked-at like a perpetual Bond, paying annuity income as a coupon, and with NPV at Zero (0), to find the ‘price you should pay no more than’; using a multiple of income, and a cost to buy (reflecting perceived risk).

11. The formula for this calculation may be:-

• NPV = (EBIT x (1 + (1/Opportunity Cost))) – Original Cost.

• Setting NPV to Zero (0), the equation changes to,

• (EBIT x (1 + (1/Opportunity Cost))) = Original Cost

12. A rational risk-averse investor, only invests in positive NPV projects; so where NPV equals zero(0), you are indifferent as to whether you will invest or not.

13. There is no ‘one-true-value’.

14. Equations which model what might happen, only model our expectations of future expected cash-flow and value, and are not accurate; as only actual outcomes are measurable and real.

15. The concept of ‘common-sense’ should be fastidiously applied, and in large doses.

Expected Value per Acre: To Buy

• Bare of Stock and Plant:

– Y = $770.00 x (21.0) -0.717  = $3.124M. (or $86.79 per Acre.)

– We use the higher carrying capacity of 1:21.0 -Acres because the place is a blank piece of paper, and may have many uses; however that is the long-term carrying capacity of the place, on the average.

• WIWO (as a Going Concern):-

– Y = $1,417.30 x (16.15) -0.86  = $4.664M. (or $129.55 per Acre.)

• Value to Pay No More Than (WIWO):

– NPV = (EBIT x (1 + (1/Opportunity Cost))) – Original Cost.

– Set NPV equal to Zero (0).

– Equation becomes:-

o (EBIT x (1 + (1/Opportunity Cost))) = Original Cost.

o ($450K. x (1 + (1/0.095))) = Original Cost.

– Original Cost = $5.1868M. (or $144.08 per Acre)

– Therefore, the break-even value per Acre above, is the maximum you should pay; if the EBIT is $450K. and the borrowing cost is 9.5pcpa.

– Of course, if either variable changes, then so will the answer.

• ‘True’ value for WIWO lies between $129.55 and $144.08 per Acre.

• As you can see, it is important to have a view of the future, to ensure you do not pay too much.

• As each case is different, please consult with your advisor; however, the above should give you food for thought.

• Of course, ‘value’ is in the eye of the beholder; price is what you pay, and value is what you get.

• Be aware that under this model, if all else remains constant under the WIWO example above, except if Item-2 changes to 30pc, then the value per Acre you are willing to pay may fall to $87.72. This is a big difference, and it indicates the higher level of perceived operating and financial risk, as Debt/Equity ratio moves from 20pc or 2/8 (25pc), to 30pc or 3/7 (43pc).

• Alternately, if the Expected Future Revenue looks set to jump (due to the signing of a long-term trade agreement with another country), then the Demand Curve for beef will shift quickly relative to the Supply Curve (which is fixed in the short-term), and of course you should expect to receive a higher capital payment if you are a seller; and conversely pay more if you are a buyer.

Expected Value per Acre: To Lease or for Agistment

If you did not want to buy through lack of access to capital, and merely required Agistment, or a Lease, on a per-Head-per-Week basis (as applied to adult cattle), and the expected yield was similar to the Opportunity Cost of Capital, then the following may apply:-

– ((Value / Acre) x (Opportunity Cost) x (Carrying Capacity / Acre)) / 52-Weeks.

– Or, our old friend, (Beast Area Valuation x Opportunity Cost) / 52-Weeks.

– Dry Cattle  = ($144.08 x 9.5pc x 16.15) / 52 = $4.25 per Head per Week, or

– Dry Cattle  = ($2,326.89 x 9.5pc) / 52-Weeks = $4.25 per Head per Week.

– Wet Cattle = ($144.08 x 9.5pc x 23.10) / 52 = $6.08 per Head per Week, or

– Wet Cattle = ($3,328.25 x 9.5pc) / 52-Weeks = $6.08 per Head per Week.

– Same income overall will eventuate, but able to carry less adult cattle; per the assumptions above.

– You will note BAV is different for Wet or Dry cattle. How can this be? It is exactly the same block of land! Therefore, BAV may be confusing, and should only be used as a rough guide when valuing agricultural land.

Conclusions

What I have tried to show here, in the above assumptions and calculations, is that a rational approach needs to be made to the valuation of any investment, no matter where, or what it is; else you run the risk of paying too much.

It may also mean having your banker/financier see the investment as more high-risk than it otherwise should be, and therefore self-justifying charging you a higher interest rate premium, as applied on borrowed funds, than necessary; which may have the unintended consequence of leading to a higher risk of bankruptcy in marginal investments; remember this type of business is usually asset-rich, but cash-poor (though it should not be); so always build into your calculations a Margin-of-Safety.

The Discounted Cash-Flow (DCF) Method and the calculation of the Net Present Value (NPV) of an income stream, is a very appropriate way to value an asset of this type, and is used by investors from all walks of life; whilst also being strongly supported by the Courts, as a valid and robust approach to valuing assets.

The ‘accounting equation’ (where Assets = Liabilities + Equity), like all good algebra, must stay in balance. When valuing a business using this Method, you are valuing the Assets which you need to operate the business; however, if you are buying the business’ legal structure (ie a Pty Ltd company, for example), then take out any Surplus Assets and remove any Liabilities you are not absorbing, to arrive at the Equity Value (where Assets minus Liabilities = Equity).

Look to the long-term patterns in the data for randomness, trend, cycle, and seasonality, etcetera, by using a 13-week Weighted Moving Average of Revenue (for example), only looking back to learn; however, have a view of the future, and remember, you value an asset with a view to the future expected income from it.

The past has a memory, which carries forward, though dissipating with the passage of time; usually exponentially, depending upon the accepted usage and effect. Remember the past is just a guide to the future, so only look back to learn.

Do not pay too much; as you make your profit when you buy, not when you sell.

I encourage debate, and am happy to be proved wrong.

Good Luck, and thank you for your time.” End quote. The analysis is part of a series to Beef and Central by Michael Vail, and is addressed to investors making capital budgeting decisions towards a long-term investment in the agricultural production industry. Co2Land org posts this not as advice but for information only.

CO2Land org only adds that these numbers will change as values change and if you recall sentiments over commitment periods for CFI, you may now consider insurance packages may be the new industry to protect the family – assuming families are still allowed to compete in agriculture.