The CPRS and the Australian
agriculture sector
Australia’s Independent Farm Policy Research Institute
www.farminstitute.org.au
Mick Keogh
Australian Farm Institute
• Policy proposals
•Industry impacts
•Unresolved issues
• Major energy users and emitters required to furnish annual greenhouse
returns commencing for 2008 year (National Greenhouse and Energy
Reporting Act, 2007)
• 1,200 largest direct emitters (25 Kt threshold) including bulk fuel distributors
required to directly participate in the CPRS from June 2011.
• Legislation will make it illegal for these to release emissions without a permit
(each permit equals one tonne of emissions)
• Permits to be released (auctioned) by Government, and will be tradable.
Less permits released each year.
• Permit prices will be capped at $10 for 2011/12.
• Emissions from “Emissions Intensive Trade Exposed” (EITE) activities will
initially receive 95%/66% of required permits for free (declining by 1.3% pa)
Main features of the CPRS
Start
Does
business
exceed
NGERS
Threshold
?
Complete Annual
emission
statement
Submit to
Government
Is business in
fuel or a
„covered‟ sector
and >25,000 t
CO2-e ?
No CPRS
obligation
Calculate
emissions
using
standard
activity
emission
factors
Is
business
involved
in EITE
activities
?
Calculate
emissions
from
EITE
activities
Receive free
permits EITE
Purchase or earn
required emission
permits
Complete
annual
emission
return
Surrender emission
permits to
Government
No
No
NGERS Carbon Pollution Reduction Scheme
Yes
Post
2011 YesYes
• Agriculture to remain „uncovered‟ until measurement/administration issues
resolved – potentially to participate post 2015
• Petrol price increases to be offset by reduced petrol tax for first three years.
• Off-road diesel users compensated with increased rebates for first three
years.
• Heavy vehicle fuel costs compensated for first year only
• Forestry to be covered on a voluntary basis
Additional elements of the CPRS
Australian emission trajectory – CPRS -5%
0
200
400
600
800
0
200
400
600
800
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Net emissions Gross emissions Permits imported
Mt CO2-e Mt CO2-e
• Agriculture to remain „uncovered‟ indefinitely, with the Productivity
Commission to conduct a review in 2015 of potential measures to reduce
agricultural emissions.
• Agricultural offsets (livestock, fertiliser emissions) to be recognised as
generating emission permits.
• Soil carbon offsets to be recognised in „voluntary‟ carbon markets, pending
changes to Kyoto Protocol accounting rules.
• Post-1990 regrowth forests to be recognised as forestry offsets.
“The deal” – now Government policy
• Policy proposals
•Industry impacts
•Unresolved issues
40%
60%
80%
100%
120%
140%
160%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Perc
en
t o
f 1990 e
mis
sio
ns
Combined Energy, Industrial
and Waste sector emissions
Combined Agriculture and
Landuse change emissions
Total Australian emissions
Farm emissions Impacts Challenges
Cattle (digestion)
50%
Sheep (digestion)
16%
Others (digestion)0%
Manure management
4%
Direct soil emissions
6%
Animal wastes5%
Indirect emissions8%
Savannah burning
10%
Rice cultivation0%
Stubble burning1%
Share of Australian agricultural emissions.
Fuel
Fuel – emissions
allocated to major
fuel distributors
Electricity – emissions
allocated to electricity
generators
Direct farm emissions – Livestock and wastes,
Non-CO2 soil emissions,
fertilisers
A farm emissions „rule of thumb‟ calculator
• 2 tonnes per annum CO2-e
for each adult cattle
• 0.2 tonnes per annum CO2-e
for each adult sheep
• 0.5 tonnes per annum CO2-e
for each Hectare of dryland
crop.
Farm greenhouse emissions.(1,000 head cattle herd on 5,000 ha, of which 500 ha cropped)
N2O - wastes
N2O - soils
N2O - Fertiliser
CH4 - Cattle
TOTAL
2,5000 1,000 2,000
Emissions - Tonnes CO2-e
209
706
49
1,475
2,439
2010 2020 2030
$10b
$20b
Outp
ut $
b
Time
Business
as usual
CPRS
scenario
Change in
projected
output
Economic modelling
0
50
100
150
200
250
2010 2015 2020 2025 2030 2035 2040 2045 2050
CPRS -5 CPRS -15
$2005/tCO2-e
Projected carbon prices (Treasury, 2008)
CPRS impacts on energy prices
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
$2.60
Cen
ts/lit
re
Fuel prices
High
Medium
Low
$0
$50
$100
$150
$200
$250
$300
$350
Do
llars
per
Meg
aw
att
ho
ur
Electricity prices
High
Medium
Low
Emission intensity and free permits.
Sub-sector Emissions intensity(T CO2-e/$ Million)
Proposed EITE status
Beef cattle 6,687 95% free permits
Sheep 3,513 95% free permits
Dairy 3,240 95% free permits
Rice 2,500 95% free permits
Pigs 1,958 66% free permits
Sugar 1,054 66% free permits
Poultry 792 0 free permits
Grains 523 0 free permits
Cotton 494 0 free permits
0
1
2
3
4
5
% C
han
ge
Increase in production costs(ABARE 2015, CPRS-5 emission price)
Agriculture not covered
Electricity, freight, fuel costs only. No indirect costs
0
1
2
3
4
5
% c
ha
ng
e
Increase in production costs(ABARE, 2015, CPRS-5 emission price)
Uncovered
ETS
Electricity, freight, fuel costs only. No indirect cost increases
-30
-25
-20
-15
-10
-5
0
% c
ha
ng
e f
rom
bu
sin
es
s a
s u
su
al
Percent change in net GVP (CIE)
2020
2030
Assumes no international cooperation
Source: CIE modelling for AFI
* Assumes cropping businesses receive no free permits
-28.00%
-24.00%
-20.00%
-16.00%
-12.00%
-8.00%
-4.00%
0.00%
% C
ha
ng
e f
rom
bu
sin
es
s-a
s-u
su
al
CPRS impact on farm cash margins 2016 (CPRS-5 emission price)
Uncovered
ETS-EITE
-25
-20
-15
-10
-5
0
Ch
an
ge
in
fa
rm e
co
no
mic
ou
tpu
t (%
)
CPRS impacts on agriculture, 2015
CPRS cost
Processor cost
Input costs
Source: ABARE
• Policy proposals
•Industry impacts
•Unresolved issues
Soil carbon and Article 3.4 of Kyoto Protocol
Additional activities that capture or release carbon on agricultural
lands (soil, vegetation) can be included in national emissions
BUT ..
1. Net-net accounting rules apply
2. One-in – all-in (for a nation or business) – not just areas where
soil carbon is increasing.
3. No separation of natural and man-made changes (major soil
emissions during drought)
Annual yield of 10 tonnes of dry matter and 5 tonnes of roots per hectare, consisting of 40% elemental carbon.
Stocked at 2 cattle per hectare, with 70% pasture utilisation by cattle. Cattle weight gain of 1 kg per day, with beef
estimated to contain 50% elemental carbon. Data is approximate.
22 tonnes
Co2-e fixed
from the
atmosphere
in plant
matter
3 tonnes Co2-e
released as
methane
Up to 1 tonne CO2-e per hectare per annum fixed in soil
(depending on season, management)
Balance
recycled to
atmosphere
through decay,
insects,
micro-organisms
etc.
1.4 tonnes
Co2-e in
beef
Money from trees
Years
To
nn
es C
O2-e
= P
erm
its
2010 2015 2020 2025
50
100
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2010 2015 2020 2025 2030 2035 2040 2045 2050
CPRS -15 CPRS -5
'000 hectares '000 hectares
Additional land under forestry
0
50
100
150
200
250
300
350
<$100k $1-200k $2-400k $400k+
He
cta
res
(@
70%
esti
ma
ted
tim
be
r yie
ld)
Plantation area required to offset 100% of livestock emissions
<500mm rain
500-700mm rain
700mm +
Sheep specialists Farm gross turnover
<$100k $1-200k $2-400k $400k+
dse 1,291 2,746 4,663 8,837
T CO2-e 267 558 948 1,816
Non-participant
Direct participant
Upstream-downstream
Hybrid model
Full
Participant
Upstream/
Downstream
Hybrid
model
Baseline/
Credit
Intensity
model
Broadacre
Livestock ?
Broadacre
Cropping
Specialised
Cropping
Horticulture
Intensive
Livestock
Industry Government
Meeting industry and Government needs
USA, NZ & Australia
Australia N.Z. USA
International
linkage
Kyoto Protocol ratified Kyoto Protocol ratified No ratification of Kyoto
Protocol
Agriculture
Coverage
Not before 2015 From 2015 – Processor
point-of-obligation
Draft legislation exempts
agriculture
“Offsets” Permanent forestry and
offsets from livestock,
fertiliser mitigation.
Permanent forestry Wide range of soil, pasture,
livestock, fertiliser, (5 yrs)
forestry (20 yrs) and
effluent management
options administered by
USDA. Harvested timber.
Concessions •Farm – 94.5% free
permits for
Cattle/Sheep(?)
•Processors – no free
permits
•$10 permits 2011
•Farm and processors 90%
free permits initially,
reducing 1.3% pa
•50% obligation yrs 1-3
•$25 cap yrs 1-3
•EITE measures – free
permits
•Foreshadows importers
requiring permits
•Product Carbon
Disclosure requirements.
Conclusions
• Modelling studies highlight indirect and direct impacts of CPRS on
agriculture. Clarification of assumptions , metrics essential.
• ETS will present a bigger challenge than climate change in the medium
term, and will reduce agricultural competitiveness.
• Livestock industries face a particular challenge if made responsible for the
cost of „measured‟ emissions.
• Forestry abatement presents a significant opportunity, depending on policy
settings.
• R & D investment , productivity and targeting higher-value markets will be
the key to continued profitability.
www.farminstitute.org.au
www.farminstitute.org.au
Australia’s Independent Farm Policy Research Institute