Understanding the wave of carbon farming projects in Australia

Soil carbon projects have taken off in Australia's compliance-based Emissions Reduction Fund carbon market scheme, with a surge of projects registered in 2021 and 2022.

Soil carbon projects seek to increase the storage of carbon in soil through implementing certain land management practices. Examples of carbon farming techniques that enhance soil carbon sequestration include cover cropping, the prevention of overgrazing, and no-till cropping.

Nature-based solutions, such as soil carbon projects, are one of the most cost-effective mechanisms for storing carbon, according to a report from Australia's national science agency, the Commonwealth Scientific and Industrial Research Organization, published in December 2022. Soil carbon sequestration costs around A$7-A$13/mt CO2, according to the report.

Apart from being cost-effective, soil carbon projects also provide an additional source of income for farmers and help to prevent land-use change.

There are "enormous co-benefits provided by healthy soils and there is potential for soil carbon sequestration to be the most significant carbon dioxide removal technology," said Louise Edmonds, CEO of Australia-based project developer Carbon Sync.

Project registrations continue to grow

Under the ERF, project developers can participate in the compliance-based market by utilizing the program's established methodologies to generate Australian carbon credit units, or ACCUs.

With soil carbon projects representing over 80% of total project registrations in 2021, Australia's Clean Energy Regulator "continues to see a strong interest in soil carbon projects," a CER spokesperson said via email April 13.

"Soil carbon projects are the fastest growing category of project registrations in Australia," Edmonds said.

There are 450 soil carbon projects registered under the country's ERF as of April 13, according to a CER spokesperson. It takes around 3 years for projects to begin generating ACCUs, the CER spokesperson added. However, of the 450 soil carbon projects registered between 2015 and 2023, only one project has been issued credits, with 1,904 ACCUs generated as of April 13.

Agriprove, a leading Australia-based carbon farming project developer, has registered over 350 of the 450 soil carbon projects in the country, according to the company's website.

Certain soil carbon projects have seen greater uptake among landowners in Australia. Increasing crop diversity, cover cropping, and enhancing grazing management are some of the most common soil carbon project types, AgriProve Managing Director Matthew Warnken told S&P Global Commodity Insights in an interview earlier this year.

With only one project having generated ACCUs so far, market participants are expecting a wave of ACCU issuances for soil carbon projects in 2023.

"We've got an application in for around 3,500 credits that we hope will get issued over the next four weeks and then 50,000 credits shortly after," Warnken said in January.

"News of these issuances will be big news, global news. It will put some serious energy behind soil carbon sequestration as an economically viable and globally scalable carbon dioxide removal technology," Edmonds added.

Soil carbon methodology

Australia's Clean Energy Regulator has published several soil carbon project methodologies over the past decade. The methodologies established early on in the development of the market saw minimal adoption, and it wasn't until the 2018 and 2021 methods were established that project registrations began to take off.

"The 2018 and 2021 methods are moving at a cracking pace in Australia," Edmonds said.

The 2021 method, which came into effect in December 2021, takes a hybrid approach to soil carbon quantification, meaning that project developers can use both measurement and modeling to determine changes in soil carbon. While some market participants support the use of models, others challenge the efficacy of modeling project results.

"Carbon Sync is not supporting models at this point -- we believe there are significant data gaps that need to be filled before we can be confident in the integrity of models," Edmonds said.

On the other hand, Warnken noted that in order to reduce the uncertainty of models, we need to be doing more modeling to increase our confidence in the models.

Incentives

The Australian Government has implemented various programs to encourage the participation of farmers in carbon markets. The National Soil Carbon Innovation Challenge is one of the key programs supporting carbon farming in the country. This A$50 million program "aims to reduce the cost of reliably measuring soil organic carbon," according to the Department of Climate Change, Energy, the Environment and Water's website.

In November 2022, almost A$30 million was awarded for the first round of funding to eight projects that demonstrated promising approaches to measuring soil organic carbon. The second application round of funding closed on April 11, and an announcement of funding has yet to be released.

"Grant funding is important recognition from Government of the importance of this work as we all continue to work towards the necessary scalability of soil carbon farming required to achieve Australia's emission targets," Warnken said in a statement late last year.

In another attempt to encourage participation in carbon markets, the country's Clean Energy Regulator launched a pilot project that provides up to A$5,000 as an advanced payment for ACCUs for eligible ERF projects to reduce the burden of up-front costs of baseline soil sampling.

In a similar effort, the Australian Government partnered with Southern Cross University to implement the Soil Monitoring Incentives Program pilot, which concluded in December 2022. Under the program, farmers could receive technical and financial support to conduct soil sampling in an effort to encourage participation in the ERF.

Pricing

Market participants have touted the potential for soil carbon credits to attract a premium in the Australian market context.

"My expectation is that there will be a premium in the market between spot and what can sell soil carbon for partly due to their novelty but also if you look at other high co-benefit credits like environmental plantings in the Australian context they are trading at a premium," Warnken said.

Soil carbon projects "require a carbon price of A$30+ to be viable," Edmonds added.

Platts, part of S&P Global, assessed generic ACCUs at AU$38.10 on April 14.

Human Induced Regeneration, or HIR, ACCUs, which are generated by projects that enable enhanced carbon sequestration in native vegetation through improved land management practices, were assessed at AU$38.10 on April 14.