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Is growing trees for carbon credits in the low rainfall Western Australian Wheatbelt after 10 years profitable?

Gianatti, Allen (2012) Is growing trees for carbon credits in the low rainfall Western Australian Wheatbelt after 10 years profitable? Masters by Coursework thesis, Murdoch University.

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Wickepin is a low rainfall area in the south west of Australia where wheat and sheep are the dominant forms of farming. These farming systems are typical of much of south-western Western Australia where clearing of the native vegetation for farming over the last century has contributed to the onset of widespread salinity and the subsequent loss of productivity on the affected land. However, with the commencement of national carbon management legislation the Carbon Credits Energy (Carbon Farming Initiative) Act (Cth) 2011 (CFI) on July 1 2012 carbon sequestered in reforestation and soils can be brought to account and sold to emitters elsewhere in the economy.

A key question is whether farmers and investors can generate profit by either (a) replanting trees on salt affected land or (b) replacing existing crops and pastures with trees. Although several authors have suggested that wide-spread carbon sequestration is possible in this and similar environments elsewhere in Australia, this is often as a result of modelling, rather than real data. Carbon sequestration was thus examined for a range of tree species in a field trial planted in 2001 at Wickepin. The data have been analysed to determine whether carbon credits could be claimed and the economic return from reforestation over a 10-year period determined. Although additional environmental service markets (e.g. paying for salinity repair, biodiversity enhancement) or other markets for forestry products (as a bioenergy feedstock, timber) are often posited, none of these markets currently exists in any depth and the analysis was undertaken for carbon value alone.

The study found that although Eucalyptus occidentalis (2000 stems ha-1) had the highest carbon 10-year sequestration rate of 78.3±8.4 t CO2-e ha-1, E. sargentii (500 stems ha-1) had the most promise (economic return, survival, growth rate) with carbon sequestration at 65.1±9.7 t CO2-e ha-1, as it is less costly to establish trees at a lower planting density. These rates are similar to those predicted by Polglase et al. (2008). Assuming a carbon credit price of $23 t CO2-e-1, the return was $1498 ha-1 which translated to a rate of return of 13.4% and this is considered a good investment prospect for the treatment of saline land by farmers. For an investor considering converting existing crops or pastures to trees the returns on the trees after 10 years would have been 9.8% p.a., however the venture would be overall rendered uneconomic due to the large decrease in land value associated with such a change. In this case it was assumed that wholesale reforestation of farmland reduced other economic options for the land.

Investors considering reforesting for carbon credits should thus only invest in farms that are run down or suffer major salinity which would be available at a very low price per hectare compared to profitable farms used for current agricultural production. For both a farmer and investor given that the carbon price will be allowed to fluctuate, or the CFI may be scrapped altogether, there is still risk that although the trees are planted and achieve the predicted carbon sequestration rates there may be no positive financial return.

The study concludes that the CFI is an exciting opportunity to address both salinity (and indirectly biodiversity) and will in general provide an economic return on non productive farmland for existing landowners. It recommends that uncertainty with both a minimum carbon price and the continuation of the scheme be resolved before making large-scale investment.

Item Type: Thesis (Masters by Coursework)
Murdoch Affiliation(s): School of Environmental Science
Supervisor(s): Harper, Richard
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