In The Know: Carbon Shortcuts Episode 2 ✌️ of 4

Oli Le Lievre 0:02 The information shared as part of this carbon series is general in nature. We're asking questions of Professor Richard Eckhart and he's providing his insights from his expertise. Humans agriculture doesn't endorse any of these views as part of this. They're really designed to just be conversation starters. And if you want to get more information, please reach out to specialists and experts in the carbon space. Welcome back to episode two of carbon shortcuts and introduction to all things carbon in the agriculture. This series is sponsored by Luminati, a carbon measurement tool. And after episode three, we'll be sitting down with co founder Bobby Miller to hear more about it. Now. We love seeing so many people getting involved in and asking questions on social media following our little preview Episode and Episode One. Please keep reaching out to us. We'd love to hear from you with any questions. You've got Hello at humans of agriculture.com or hit us up on social media. We are all ears and really hoping that the conversations that we're starting here get you curious about what are the challenges and also the opportunities for agriculture in everything carbon? I think Sam what was interesting, over the weekend, I saw that there's two farms in well in Australia, but I think they're in northern New South Wales or southern Queensland, and they've racked up more than 150,000 credits. And in the comments section. What someone was saying is when they started to look at this project, which was held between 2016 and I think 2022 The person said all with a measuring biodiversity credits as well, which is pretty timely for Episode Two. What have we got in store? Samantha Noon 1:29 Well, if you haven't listened to Episode One, we recommend you head back and listen to it as the conversation covers a lot. We cover baseline years, Australia's emissions goals, whether livestock can ever actually be carbon neutral, and the role of Ag in mitigating carbon emissions as well as some of the ways that you can participate in the market. So for Episode Two, Ollie and I are back with Professor Richard Eckhart from the Uni of Melbourne to learn about the different types of markets the difference between offsetting, and it's insetting. And Richard begins to speak about biodiversity credits. So let's get into it. Oli Le Lievre 2:11 Kicking off Can you tell us like what is an accurate and what's the difference between the voluntary market and the compliance market Speaker 3 2:18 and EQ you the acronym stands for Australian carbon credit unit, every country that has a government scheme would have their definition of their EU carbon credit or a New Zealand carbon credit unit. And an Australian carbon credit unit is basically one tonne of carbon dioxide equivalent, that is either stored or avoided. What I mean by avoided you didn't produce one tonne of methane equivalent, you didn't produce one tonne of nitrous oxide, or you now have one tonne of carbon dioxide equivalents stored in the soil or trees. And for that, assuming you have complied with a Australian carbon credit methodology, the Clean Energy regulator can award you with a carbon credit unit or units. Oli Le Lievre 3:04 Can you give us some examples of who's participating in each of both the voluntary and compliance market and some of the examples of I guess, the trades that are happening there? Speaker 3 3:14 Yeah, so there's quite a difference between the voluntary market and a compliance market, I generally refer to a compliance market as being the New Zealand ETS or the Australian emission reduction fund or carbon offset methodology fund, or the European Union trading scheme or the Alberta scheme. Those are government run schemes. So they we call them compliance schemes. So inherently they tend to be more belt and braces, they tend to be more more evidence based, stronger burden of proof, stronger compliance adherence to certain principles, integrity principles. And so what you'll find is entities in Australia that can comply with that methodology of we have planted trees and we can show you there the trees or we can demonstrate we've measured soil carbon on day one and five years later, we measured soil carbon, there's a big difference between the two, then you can comply with the methodology and trade on the Australian market. Voluntary markets have existed for at least a decade, if not longer. These are international markets, generally, the voluntary carbon standard or Vera. The gold standard is another one. Those are the two big ones. And they have a bunch of methodologies for the agricultural sector but also the industrial sector. So for example, if you fed a dietary supplement, to dairy cows in northern Victoria tomorrow, you could register that project with the voluntary carbon market under what we call the mu trail or the diet supplement method. This is a method that was created for new trail as a product initially, but now Bovisa or three and Opie is compliant and you can actually look at putting other methodologies in it. The basic calculation is a lot more simplistic. Probably the integrity basis is not quite as strenuous. But the big difference is a compliance market has is a unique identifier on every carbon credit, and the government is responsible for tracking them in a registry. So we know at any one time where any Australian carbon credit unit is anywhere in the economy, if I sell it to you, you've got to change hands on the registry. So we know where they are. And we know how to reconcile them all. And that's really important from integrity. The voluntary market, it's not part of the business model to have unique identifiers. So technically, you can sell the same soil carbon three times on three voluntary markets. And they don't know about each other, which is a big issue, you can see. So in their business model, having unique identifiers so that you can globally reconcile all the carbon being sold is not in the business model. Now, it doesn't mean to say they're not doing good, they are doing good. The floor comes in, where if you are not honest in how you sold soil carbon, you can sell the sales, same soil carbon on three separate markets without them knowing about each other. That's the difference. The Australian carbon market is one of the bigger compliance markets now around the world, we think it's reached a bit of saturation. Because if you look at the number of trades that are taking place, they're now decreasing in every reverse auction that the government runs. Because all the easy credits have been bought, the more difficult ones remain. And so when you look at the graph of volume, it's definitely tailed off into the last couple of auctions that have taken place. The voluntary markets around the world are just steadily growing. Because more and more people are becoming aware of the potential of using voluntary carbon credits to claim that your law business in New York City is carbon neutral. And you can go to a voluntary carbon market and buy the carbon offsets for $1 a tonne. When the EU price is more like 70 a turn and the Australian price is more like 35 a tonne. You can buy cheap credits on the voluntary market and claimed to be carbon neutral. So that's always going to grow that market in terms of size, I couldn't give you a number on it, just that the dollar value is going to increase as demand ratchets up. So you can imagine the safeguard mechanism coming in where all entities now have to reduce the emissions by 6% per year or by credits. Suddenly, the idea of Australian carbon credits being $35 a tonne, they'll be 75 like they were before they were deregulated. It won't take long and the voluntary market is similar fashion. Samantha Noon 7:20 It's interesting that you said earlier, I would just be curious to know any specific areas that you were referencing that, you know weren't being picked up as much in Australia in terms of the market. Speaker 3 7:33 In terms of the Australian carbon credit market in terms of the compliance market in Australia, we see most of the action in the forestry sector. So most of the carbon credits traded avoided deforestation, human induced regeneration and plantations. That's where most of the action is. And that's probably not surprising because the forestry sector has known about carbon credits and carbon sequestration for generations, it's nothing new for them. When these rules were being made up, they were sitting in the front row of the negotiating table, when agriculture didn't even recognise there was a problem. So the next biggest beneficiary is town Council's with methane generation from effluent and waste, something we've known for 1000s of years as you put organic material in a wet environment, anaerobic, and you can generate a flammable gas. We've known that for generations. So again, the technology quite mature and ready to move. So that's why that was second. If you look at where the rest of the action is, in the industrial sector, it's quite lacking. The number of carbon credits traded in where the big emitters are producing their emissions. It's almost negligible end of the scheme, Oli Le Lievre 8:41 I think, like something I'm curious about is, it feels like potentially the discussion is overnight this carbon market has come there's a potential to get another diversified revenue off your farm or through your business for doing not a whole lot, how much front up investment is needed to actually start to get and accrue these credits, versus I guess, the payout and what that payout looks like over, say, a 510 25 year period. Speaker 3 9:06 Look, there's a very salient point in that we did a whole analysis of a number of projects quite a long time ago now. But we came up with this rough rule of thumb that a single carbon offset project on a single family farm would generate less than 1% of the farms turnover. So you take a $2 million dairy business, a single offset method would generate them $2,000 Now, we can't get farmers to Soltis to save themselves $10,000 let alone get them out of bed for 2000. But if you think about it, when you look at where all the action is with large corporates, why is that because point 1% of turnover of the largest corporate agriculture enterprises turns out to be $20 million. So numerically, the corporates are making it work. And for that level of revenue, most of the corporates can afford to have their own internal carbon management offices. What's a debate $150,000 for a carbon management office that when you generate millions of dollars of carbon revenue. So that's why the scheme has favoured the larger corporates just because of volume, the incentive for individual family firms, even if you had brokers aggregate brokers across multiple properties, it still doesn't change the revenue back to the individual family farm. So for most of broadacre, agriculture, that's why they're not engaged just because the revenue stream is just not enough. Oli Le Lievre 10:26 And so I guess to that point, the carrot is not going to come in this approach is it going to be more of a stick, and this is just your ability for market access that's coming into it. Speaker 3 10:34 So I would point to the sort of climate active paper that's been released. So we've been working with climate active on a an insulating framework for agriculture, recognising that you can go only so far with carbon credits as an incentive. In the end, the supply chain is going to set targets. And we're going to have to comply with supply chain targets, which means keep your carbon for yourself, instead, do an honest audit on your farm. And as long as it's meets the supply chain requirements for demonstrating lower emissions, you insert towards making sure you have priority access into your supply chain. So by 2030, that is going to be the main game in town is a shift out of this notion of diversified income from carbon. Realising that if we didn't keep it for ourselves, we might lose the main game, which is selling our product. So Oli Le Lievre 11:22 you've just introduced a new concept or new terminology there to us, can you just touch on the difference between offsetting and inserting, Speaker 3 11:29 when we first started in this game, it was all carbon offsets was the terminology we were all using where someone out there is producing more emissions than they are allowed to. And in agriculture, we can store carbon in soils, but maybe we can make revenue by selling them our carbon, they buy our carbon as an ACU Australian carbon credit unit. And they retire that against their obligation, which means that they've used it to offset the emissions they couldn't reduce. When we did the net zero Australia plan, it became so obvious to us that agriculture needed to keep its carbon it can't actually afford to sell it. Because well supply chain access is our main game, which then we needed a term to say, well, what's the difference between generating an Australian carbon credit unit, versus just keeping your carbon for yourself. And so insetting came about as a result, where we said, well, let's not offset sell it as an offset, let's keep it as an inset within our farm because that carbon is physically sitting in your soil. It's physically sitting in your trees. So let's call it an insert in your farming operation, towards your own carbon balance down the track. Samantha Noon 12:37 I think that's a really interesting point you make in terms of building the long term resilience of property and a commodity that doesn't actually leave the farm gate. And I guess if you had anything to share with farmers, what advice would you have about considering in setting and offsetting like really tangible considerations? Speaker 3 13:00 When I say inserting we largely talking about soil and tree carbon. So let's have a conversation about those two briefly, because when we do a number of case studies on soil carbon, we find that the inherent productivity value of high soil carbon is one or two orders of magnitude more profitable back to the farm, then selling a carbon credit out of that soil. So the question is, why would you bother selling carbon credits, soil carbon credits, when the inherent productivity value you're going to get is going to be about 200 bucks the HC day out of more production out of that soil. So that justifies insetting. Because there's no paperwork, there's no 100 year commitments, 25 year commitments, there is no giving 30% of your carbon credits away to a aggregator before you even get the revenue from your carbon credits. You just insert them keep the productivity for yourself as part of the game. We started to see trees the same way. We're on Kenya and I've been working on the trees on farm project, quantifying the inherent productivity benefits of planting trees on farm for lamb survival, for example, or extra milk production on those wet and windy days. Turns out that a little bit of lamb survival will pay for the trees but carbon credits won't generally, but it makes a difference in how we think about trees in the landscape. It says well, it's not that block on the poor soil or the back of the farm that we're now going to sell to a carbon market. It's actually trees on the western boundary of some of our key paddocks. So we've got lamb shelter, or sharing post sharing shelter. And so it does make us think differently about how we value these because if you get it right, you wouldn't bother with selling carbon offsets from the farm you would just keep them as inserts because of the productivity value. And then it gives you access to your supply chain by 2030. Samantha Noon 14:49 All those various co benefits for your farm. Yeah, so Speaker 3 14:53 you count up all the CO benefits first so you know soils, extra nitrogen mineralization out of those soils saves you on food utiliza extra water holding capacity of a high carbon soil that gives you better growth between breaks in rainfall, better pH better cat on exchange, then you go to trees and you start seeing lamps available. You say wildlife corridors riparian restoration, meeting biodiversity credits by 2030. And that's one thing I wanted to come on to is because of supply chains of all said targets that will start by 2030. No one's gonna be selling carbon credits out of agriculture by 2030. We'll be keeping them so the notion of carbon credits disappears as the language because we're inserting our carbon. The next is GE environmental services that will be demanded is we very quickly shifting to biodiversity credits, you can see it all over the place now. And so we need to plot a pathway from where we are now with a focus on carbon, which is probably unhealthy to a focus by 2030, where biodiversity credits are the main game. And carbon is an attribute of that biodiversity credit, which it is it 45% of organic material is carbon. So any biodiversity increase on your property is carbon. But then the right person is getting paid. Because the biodiversity credit says Are you a nine out of 10 on potential biodiversity on these five metrics? Yes or no? So historic good management gets rewarded with soil carbon, we rewarding the wrong people, we saying you've got 3% soil carbon, you've got potential to go to 5%? Well, the taxpayer is going to pay you to go to 5%. Instead of us asking, Well, hang on, why aren't you 5%? What have you been doing to stuff up your soul that you 3% You should have been five, we should pay you to go beyond five, you see the how the wrong person gets paid. So the laggards get paid rather than the forward movers. So what we trying to do is through the biodiversity credit is move us to a situation where the first movers are being rewarded for good management. Samantha Noon 16:53 And on that good management and the credibility of the carbon market going forward. And Australian carbon credits, what do you think needs to change to ensure the integrity going forward, say for farmers wanting to participate? Speaker 3 17:08 If it's biodiversity credits, we've got to shift very quickly out of the notion that it's just trees. Because at the moment, there seems to be a bit of a dogma. Well, there is a biodiversity pilot out of government that to engage in it, you have to engage in the environment plantings methodology, and then the biodiversity credit market, which sends a signal saying biodiversity is about trees. It's not it is so much broader than that. Biodiversity is about soil microbial diversity, it's about plant species diversity in the landscape. And if you think about it in his greatest context, it's about building more resilience to the climate shocks coming along. Because perennial ryegrass might die if you have a monoculture of perennial ryegrass or heat, then they'll kill it all. But if you got five different plant species in there, it's unlikely your pasture will die completely. So inherently a more bio diverse future to agriculture, it could even be as far as better rotations. In other words, it might not be getting out of wheat. But it might be saying for the soil health, we need to rotate out of wheat into a permanent pasture for five years, come back into a pulse crop and then back into wheat again. And that too is a form of biodiversity. So I think in terms of the integrity, why I said we need to map the pathways, the rules of the game for biodiversity are not as clear as the rules for carbon. Carbon is got some pretty clear rules pretty additionality, permanence, all those rules that had to be in place for carbon credits. They don't yet exist for biodiversity. So in terms of integrity, we still have to come to a point where we develop the metrics that we get to measure it by but as a overriding concept, it has to be measured as what potential Have you achieved, what have you achieved relative to the potential of the land that you have on your farm? There has to be the way it is deceased, because then it's equitable for everybody. Oli Le Lievre 18:57 He started to talk about biodiversity. We're taking a step back and talking about carbon at this stage. And I guess the lack of uptake and just the challenges there are and actually understanding what actually seems like quite a black and white piece around carbon. Biodiversity is a whole new ballgame. You said it's not just about measuring trees, it's about everything that exists in that environment on the property. So where are people going to start and where is the biodiversity space? Moving? Speaker 3 19:23 Yeah, look, biodiversity, by its nature is going to be a bit less reductionist more complex than carbon carbon. We didn't spend 20 years debating the rules on how to measure carbon was another outside organisation. The IPCC told us how we had to measure it. That sort of got us going on carbon a lot quicker. biodiversity. We can make it as complicated as we want, or we can simplify it. And you got to think about for example, acoustic sensors are already being used in the landscape. You put acoustic sensors on your farm, and based on the noise we receive back we You can tell what insects are there, which tells us what trees are there. What pollen, is they based on the birds we can tell, are they insect food is are they vegetation feeders, then you get an index of what vegetation is flowering on the farm, what other things are doing on the farm. So so let's not forget that technology can deal with a lot of this a lot quicker by using surrogate measures. And it might just be that simple. It might be very cotton lint in the field. And how much has disappeared a week later tells you what the soil microbiology is doing, how active the soil microbes are, put an acoustic sensor in the paddock and you get the trees, you get the insects, you get the birds, you get the flowers, and then satellite remote sensing can tell you how diverse your crop rotations or your crop species are. So we could get it down to five remote measurements that are not extensive in themselves not time consuming, not expensive, but we'll give the results that are surrogate measures of what's happening. The reason I mentioned that the metric would be a relative to potential would have to take into account the farming system because you're in western Victoria and you are a grazing property there is 20% trees in the landscape. Your biodiversity starting point is much higher than a Wimmera Mallee cropping property that has got a two kilometre fetch of ploughed field. And the ploughed field probably has two bird species per hectare. Whereas the biodiverse farm we know one of them near Hamilton airports got 179 species on the farm. The difference is vegetation in the landscape. So it comes back to biodiversity has to be relative to the system you've imposed. There's no doubt that a lot of our cropping systems the soil biodiversity has declined and can increase. You would probably argue that a lot of our grazing systems long term grazing systems have the biodiversity that they again have. But currently, you would say we could fund the cropping system to improve biodiversity. But we're not going to pay the Grazier to improve their biodiversity. That's wrong because they are custodians of a significant amount of biodiversity on behalf of the public good. I often talk about this farm we went to in Alice Springs where the farm was twice the size of the Netherlands, the methane being produced by one animal to 40 hectares is less than the termites were producing per hectare. So if you wanted to try and measure me then on the farm, you're never going to do it because the termites are producing more. But the farm had 20% Malley covering the landscape. And you had clouds of veggies flying over your head and you had clouds of insects flying over your head, because when they came to do our carbon audit all their scope threes were zero because they'd never used a chemical on the place. So you start arguing, hang on, these farms are managing a massive amount of biodiversity on behalf of the public good, we should find a way to reward that. In terms of methodologies, we see two two methods emerging in carbon markets, we see activity based and measurement based. So both can exist, and they can both coexist. So we could find a future biodiversity market where some of the measures are activity based. I've gone out of conventional cultivation into minimum tillage, and I'm retaining stubble that's activity based and that can be credited, or adherence to best practice. Here's a best practice list for the cotton industry. How many can you take off? Yes, at the top of that, what does that mean for biodiversity, but then you can get measurement based as well and the carbon markets have got both going. Even within our soil carbon methods, we've got both if you think about the first soil carbon method was measured before measure after purely measurement based the second one was run the full cam model. And we'll give you a conservative estimate. That's activity based because it said if you go to minimum tillage, this is what we'll give you. So just within our soil carbon, two methodologies, we've got activity versus measurement in two different methods so they can be used. I think that'll be a good test, because there's no doubt that regenerative grazing tends to be less DSE per hectare, less intensive, because part of the gain in carbon is not a soil carbon. But part of the gain in carbon stocks in the landscape is about leaving more pasture behind and creating more ground cover through litter. Now, a lot of that burns off very quickly through just natural oxidation. And it doesn't necessarily it takes sort of 20 years before you see a change in soil carbon. But what it does mean is that the trade off could be well if you just reduce stocking rate you reduce your profitability because you've reduced utilisation and utilisation is one of the biggest indicators of profitability. But if there was a reward for reduced utilisation, as in there are greater carbon stocks sitting in the landscape because now you have more microbes eating up carbon in the landscape. And you can reward that well then that could balance out and look every farm is going to come up with a balance point between that because the general grazing management consultant will tell you the greatest pathway to profitability is pasture utilisation. If you go for Regenerative as a philosophy well you you've backed off on pasture utilisation on the idea that more carbon in the landscape is going to generally pay back in the long term. Samantha Noon 25:07 And more carbon, I'd say definitely opens more opportunities for farmers in terms of accreditation and potential premiums, depending on what practices they're doing, which were going to unpack more of in our next conversation, which will be exciting. Unknown Speaker 25:22 Yeah, exactly. I think there's a lot to unpack in there. Oli Le Lievre 25:25 Absolutely. Well, that's it for episode two. And please hit us up with any comments or questions you've got. We continue to ask a few questions up front in the next few episodes. So please reach out to us with anything you've got and we will try our best to get it answered. We know it's a complicated area. And I know for me, it's definitely taking a couple of lessons on each of these episodes, to actually gain a better understanding from what Richard saying. So if you're like me, maybe just hit rewind and go back to the beginning of it. Samantha Noon 25:54 Join us next week for Episode Three as we start to flesh out some of the opportunities and the hurdles for farmers. The first two episodes took us on a macro view to understand an intro to carbon and the next two will start to get a bit more specific as we look along the supply chain and inside the bomb guy. So see that