Farmers and industry can now be reimbursed for helping reduce atmospheric carbon levels through sustainable practices, after the launch of a new soil-carbon trading pilot.
University of Sydney students, with Dr Tim Capon (Research Fellow in Agricultural and Resource Economics), participated in testing the pilot, to define the best incentives for farmers to store carbon in their soil.
Launched in the NSW Lachlan catchment, the program is a joint project of NSW Department of Primary Industries (DPI), the Office of Environment and Heritage, and Lachlan Catchment Management Authority (with funding from the NSW Catchment Action Program). The soil carbon pilot establishes an industry-based market for carbon reduction, where landholders are rewarded for the reduction of greenhouse gasses.
Dr Capon worked with researchers from CSIRO and Gettysburg College. His experiments tested different ways of reimbursing landholders for the storage of carbon in their soil.
Through means of established contracts, a landholder predicts how much carbon they will sequester – either through specific actions, or through their end results – and are paid accordingly. The project works through a proposal system – like an auction – where a government agency accepts bids from landholders, promising a certain level of sequestration for a certain level of reimbursement.
At the centre of the experiment was the question of whether action-based contracts or results-based contracts were more attractive to landholders. “For action-based contracts landholders will get paid for adopting a particular action – a certain payment,”Dr Capon said.
“For outcome-based contracts…they will get paid depending on how many certificates (representing a quantity of soil carbon sequestration) they actually end up producing – an uncertain payment.”
“We found uncertainty negatively affected the willingness of people to participate in the auction,” he said.
“Also, risk-averse people initially submitted higher priced offers but were out-competed by the less risk-averse and risk-preferring participants.”
The experiments helped pave the way for the project to be established in the field, where landholders have been given options of actions-based, results-based, and hybrid contracts.
Of the 300 farms available to participate in the Lachlan catchment, 26 made applications for carbon reduction tenders. Elven farms were accepted for the project, and will begin working to reduce atmospheric carbon levels through the work of Dr Capon and University of Sydney students.
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