Can carbon farming make the carbon tax more politically palatable?

Edward B. Barbier

In mid-July, I participated as a keynote speaker at University of Sydney’s 2012 Research Symposium on Soil Security.

A major topic at the Symposium was carbon farming, which is a payment scheme that allows farmers and land managers to earn credits by storing carbon or reducing greenhouse gas emissions on the land. These credits can then be sold to pay for the various carbon storing activities.

Since late 2011, Australia’s government has operated such a scheme, called the Carbon Farming Initiative.  Under the auspices of the CFI, the government has launched the Carbon Farming Futures plan, which will provide AU$429 million over the six years to encourage carbon farming across Australia.  Under the plan, the Government will buy carbon credits from farmers and landholders who undertake carbon-saving measures such as storing carbon and revegetation.  There are many ways in which Australian farmers might eventually earn credits for storing carbon, including planting trees, reducing livestock methane emissions, and managing natural habitat, but Australian farmers seem most curious about earning credits from altering existing cultivation and farmland management so that the soils hold more carbon.

Also while I was in Sydney, the Australia Government officially launched its carbon tax initiative.  Emitters will initially pay a price of AU$23 per metric ton of carbon.  The price will increase gradually until 2015, when Australia will shift to a trading scheme that will let the market set the cost.  Interestingly, however, Australian farmers will not have to pay for their current emissions of carbon, such as methane released by farm animals or carbon emitted from the soils through cultivation.  Gasoline for farm vehicles is also exempt from the carbon tax.  But because the carbon tax impacts Australia’s entire transport sector, farmers will soon be paying higher transportation costs for marketing their produce and bringing bulk inputs to the farm.

However, Australian farmers could be the big winners from the country’s new carbon policy: exempt from much of the carbon tax but eligible for carbon credits if they participate in any of the resulting CFI schemes.  This could be a “win-win” politically for the Australian government, as they may get a powerful political force – Australia’s farm lobby – to support the new carbon policy while at the same time justifying a new subsidy for Australian farms on environmental grounds.  Governments in the rest of the world, including in the carbon tax-phobic United States, may watch this Australian initiative with interest.  Who knows, one could even see in the near future French farmers protesting in Paris and Brussels demanding  that the EU adopt Australia’s carbon policy, or a strong “carbon farm” lobby emerge in the US Congress to demand a similar policy be instituted in the next US Farm Bill.

But before one gets too excited about the potential political kudos of the Australian policy of combining a carbon tax with the Carbon Farming Initiative, there are a few important caveats.

First, one should be cautious about over-selling carbon farming.  There is still a lot of uncertainty over which methods of carbon sequestration – e.g. planting trees, reducing methane emissions or switching cultivation methods – are the most cost-effective and long-term ways of encouraging carbon sequestration on farms.  Thus, nearly half (AU$201 million) of the budget for the Carbon Farming Futures plan will fund research into new technologies and practices for land managers to reduce emissions and store soil carbon, including a national survey to identify common practice for application for activities in the CFI.

Second, even with a generous carbon credit, many Australian farmers may not necessarily participate in the CFI.  For example, a study for Southeast Australia indicates that a relatively high carbon credit of $AU200 per metric ton sequestered only induces an 11% increase in the adoption of minimum tillage cultivation and a 16% increase in no-tillage farming systems.  As the study points out (p. 727), “the adoption of carbon-sequestering technologies is already high across the Southern Region, with 65% of farmers already recognizing (without carbon incentives) the positive impact of conservation tillage practices on profitability, hence the consistently low participation rates.”  Participation rates do vary significantly across Southeast Australia, however.  In the Wimmera region, a carbon credit of $AU200 per metric ton sequestered may foster a 72% increase in the number of farmers switching from conventional to no-tillage systems.  But this region is clearly an exception; additional carbon farming in response to the CFI credit scheme is unlikely to occur across the South.

Finally, whether Australia’s carbon policy actually generates additional allies among the farming lobby may depend critically on how widespread carbon farming becomes.  Because modern commercial farming is highly transport-intensive, many of Australia’s farmers and ranchers will incur higher costs as the carbon tax impacts transportation.  If widespread participation in the CFI does not occur, then it may be only a relatively small proportion of farmers and ranchers who benefit from carbon farming credits.  It is possible, then, that the Australian farm lobby may end up being neutral, if not hostile, towards Australia’s new carbon policy.  This would be unfortunate for the government, which is already facing considerable criticism from and opposition to its carbon policy from other powerful interest groups, such as Australian mining and industry.

It will be intriguing to see how this innovative economic and political experiment in carbon policy pans out for Australia over the next several years.

It will be even more interesting to see whether the policy lasts sufficiently long enough to learn whether Australia’s farmers and ranchers embrace the policy, or ultimately reject it.

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