How effective has the Emissions Reduction Fund (ERF) scheme been in encouraging or incentivising the development of soil carbon projects in Australia?
The effectiveness of the Emissions Reduction Fund in encouraging the development of soil carbon projects can be measured in a number of ways. Principally, the number of soil carbon projects currently on the ground is a good starting point. We can compare this number with the number of other types of carbon projects and climate change mitigation projects overall. By this measure, the number of soil carbon projects is still small by comparison. Thus, it is still early days for the ERF in supporting the development of soil carbon project development.
The ERF has, however, done a solid job of ‘seeding’ the overall Australian carbon market. The original intent of the ERF was to secure ‘lowest cost abatement.’. This is to enable the Australian Government to purchase carbon credits to address Australia’s Nationally-Determined Contributions (NDCs) on behalf of the Australian Citizenry.
The ERF began with the Australian Government forward contracting with developers for carbon credits over a ten-year contract term. These contracts, known as Carbon Abatement Contracts (CACs), had very strict delivery terms and were won through a reverse auction process. This meant that the lowest cost credits were contracted with the Government, many of them involving tree plantation projects.
There have been multiple attempts in Australia to develop a soil carbon method, starting in 2014, then in 2016, 2018 and again in 2021. The 2014 method was a very conservative, model-based method. In most regions of Australia, the models assumed a conservative estimate of soil carbon sequestration potential. Therefore, not a single project was registered.
The 2016-21 methods are all measurement-based methods. These methods are incredibly complex and expensive to deliver. Today a soil carbon project needs to be delivered at scale. Also, it requires a carbon price of AU$30+ per ton of carbon dioxide equivalent (tCO2e) to be viable.
The biggest barrier to development of projects is that we do not know exactly what the sequestration outcome will be. The soil method, as mentioned, is a measurement-based method. This is in contrast to model-based methods such as the Savanna Burning, Human-Induced Regeneration and Vegetation methods. These model-based methods create certainty around project returns. Unfortunately, there is no such certainty in measurement-based methods.
Currently, there is not sufficient data about the influence of holistic and regenerative management on soil carbon stocks in Australia. So the problems with the ERF in developing soil carbon projects are:
- The uncertainty around soil carbon accrual;
- That the price was too low under ‘lowest cost abatement’ policy; and
- The contracts were too strict, risk too high for an unknown method.
Thus, one of the major issues with the ERF is that it has not recognised the requirement for the soil method to be commercialised. This commercialisation has been undertaken by private parties.
It could be argued that the investment in commercialisation of the soil method should have been done by the Government. This is especially so, when you consider the enormous public co-benefits provided by healthy soils. It is also worth noting the potential for soil carbon sequestration to be the most significant Carbon Dioxide Removal (CDR) technology.