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Should farmers keep or sell their Carbon Credits?

Australian farmers have been asking, “Should I sell or keep my carbon credits?” The answer is complicated. You are well ahead of the pack if you are already generating carbon credits. However, you may wish to consider avoiding signing any forward contracts for the sale of those credits.

You can open an Australian national registry of emissions units (ANREU) account with the Clean Energy Regulator. An ANREU is an Australian government-regulated ‘bank account’ for carbon credits. You can then control to whom and when you sell your credits. 

You may then ask, “Why do I need to generate carbon credits in the first place?” At Carbon Sync, we anticipate a number of scenarios in which farmers may need or want carbon credits: 

Scenario 1

This involves the imposition of Carbon Border Taxes in countries that receive our exports. The EU has just imposed the world’s largest Carbon Border Tax or CBAM. There are now 36 countries in the world with carbon taxes and 32 with emissions trading schemes. These countries are imposing carbon border taxes to protect domestic industries decarbonising from imported goods that are not addressing their climate impact and are, therefore, cheaper.

Mid-January 2023 marked the beginning of discussion around a potential carbon border tax for Australia.

These measures mean that it will not be long before farmers will have to declare the carbon intensity of each tonne of grain or kilogram of meat they export. The price farmers get for that commodity will have the value of the greenhouse gases emitted in the production of that commodity subtracted from the income they receive for the commodity in the country to which they export it.

The way to avoid having your commodity income reduced is to lower the emissions intensity of your production. Alternatively, you will need to generate a trade-compliant carbon credit to accompany your exported commodity. 

What should you do? Accept what the future will look like, and start preparing for this inevitability. Things you can do to prepare include using a modern farm management technology system. Be meticulous with maintaining your management data.

You can also think more deeply about your farm in the context of an entire ecosystem.

Scenario 2

This involves attracting a variety of rewards through thoroughly embracing the challenge of farm decarbonisation.

Global corporations are under increasing pressure to reduce their impact on climate & nature. The two standards corporations are accountable to when reporting on these impacts are:

  1. The Climate-Related Financial Disclosures (TCFD); and
  2. The Nature-Related Financial Disclosures (TNFD).

The stated goal of TCFD is to encourage widespread adoption of these disclosures. This will mean that the financial risks and opportunities related to climate change will become a natural part of companies’ risk management and strategic planning processes. 

As an Australian farmer, your produce is in many corporations’ supply chains. They are reliant on the commodities you produce. Therefore, they must understand the climate risk inherent in their supply chain to meet TCFD disclosures. Even more importantly, companies must act to mitigate risk in their supply chains. These corporations are falling over themselves to incentivise farmers to reduce on-farm emissions, which are part of what are called “Scope 3 Emissions”. 

TNFD aims to develop and deliver a risk management & disclosure framework for organisations to report & act on evolving nature-related risks. The ultimate aim is to support a shift in global financial flows away from nature-negative outcomes. Correspondingly, the other aim is to shift financial flows toward nature-positive outcomes.

As difficult as it may be to accept, all sectors of the economy must change if we are going to stabilise the earth’s climate and maintain habitable conditions for human life on this planet.

These standards began as voluntary and are increasingly being adopted as mandatory in the UK, EU, Japan and beyond. They mandate action. A key person who can act in a corporate food company’s supply chain is you, the land manager.

Incentives for farmers

The way these corporations can get you to act is to incentivise you to act (with ‘carrots’) or punish you for not acting (with ‘sticks’). 

At Carbon Sync, we envisage ‘carrots’ in many forms. These include:

  • payments for verified ecosystem service delivery and biodiversity;
  • price premiums for low carbon commodities;
  • access to discounted ‘green finance’ products; and
  • improved land values validated through Natural Capital Accounts.

We see ‘sticks’ in the form of:

  • carbon taxes;
  • increases in the cost of finance and insurance; and
  • reduced and discounted market access. 

How can you capture this value? 

Embrace the decarbonisation challenge. Adopt the mindset that you are in the driver’s seat because you are. You and your land management team are the only people who can deliver the outcomes these corporations need.

Agriculture is the only sector of the economy that can remove more carbon than it emits. There is a reason Australia’s carbon policy is built on Carbon Farming.

Finally, don’t get caught in the carbon tunnel. There is more to this issue than just carbon credits. Ensure you work with organisations and people who see the big picture and can help you capture all the value on offer. 

There are other advantages of soil carbon farming beyond the earning of carbon credits.

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