THE federal government will pay up to $1 billion to farmers to grow more native trees on their properties or burn off savannah grass as part of the second auction from the $2.5 billion Emissions Reduction Fund which opened on Wednesday.
Carbon farming projects, like regeneration and savannah burning, are expected to dominate the auction, but big industry players such as Qantas and Woolworths are also set to make a bid for the first time.
The projects are bidding for contracts from the Clean Energy Regulator where they will be paid to reduce carbon emissions that would otherwise have been released into the atmosphere. The strong interest is expected to drive down the cost of the carbon abatement contracts.
Cobar farmer David Snelson is a seventh-generation sheep grazier but he's decided to turn his hand to carbon farming to earn some extra money through what seems like a never-ending drought.
On his 10,000 hectare property, Yarrawonga, in western NSW, Mr Snelson will dedicate about half his farm to re-generation of native trees - and be paid for it by taxpayers. He's had to reduce the number of sheep on his property from about 4000 to 3000 and commit to not clearing half his property but Mr Snelson is hoping it will be enough to keep him in the black and keep his farm in family ownership.
"It's off-set revenue I have lost from the drought. If I can make a bit of money and keep my property that's great. If it's also helping to reduce the nation's carbon footprint that's a bonus," Mr Snelson told The Australian Financial Review.
Mr Snelson is one of 389 projects bidding for the second auction of the $2.5 billion Emissions Reduction Fund, which opened on Wednesday.
More than $1 billion is expected to be awarded when the results of the auction are released next week - once again raising the prospect the federal government may be forced to top-up the fund before next year's election.
In the first auction, 43 companies were awarded contracts worth $660 million to eliminate 47 million tonnes of carbon, with an average price of just under $14 a tonne.
Climate Friendly manager Josh Harris, a project developer who is working on 50 smaller carbon projects from Cape York in North Queensland to western NSW, said he expected the land sector to dominate the carbon market in this week's auction.
Of the 389 projects registered for the auction, about 75 per cent are from the land sector, including re-forestation projects and savannah burning by traditional owners to avoid wildfires. Only 10 per cent are from the larger industrial sector and the rest are from landfills and other projects, Mr Harris said.
"The land sector is still dominating the sector, mostly farmers and Aboriginal groups. There is a few legacy landfill projects still in there but mostly it's the land sector," Mr Harris said.
Carbon farmers can reduce hundreds of thousands of tonnes of carbon - sometimes even millions of tonnes - during the course of the 10-year contracts. They are independently audited every year to keep track of the regeneration of the properties. One of the projects that won a contract in the first auction was the Kinchela Forest regeneration project, about 60 kilometres south of Bourke in north-west NSW.
The former sheep and now cattle property is about 16,100 hectares in size, with the regeneration project of native trees taking up 13,083 hectares.
Kinchela landowner John Cliveden Bull aims to prevent about 20,000 tonnes of carbon emissions each year. He said he hoped carbon farming would help reduce the need for government drought funding.
Mr Harris said the stronger interest in the second auction could drive down the price of carbon abatement as projects lower the costs to secure a contract. "The main change between the first and second auction is there is more interest this time. There's been a 50 per cent increase in projects bidding from 250 the first time to 389 now."
Melbourne-based consultancy RepuTex has also predicted forest regeneration, savannah burning and coal mine waste activities will be the big winners from this week's auction. The presence of a few big players will most likely drive down the cost of abatement below the $13.95 a tonne from the first auction.
"While industry accounts for only a small number of projects registered...we anticipate they will supply a few relatively large volume of credits, particularly from coal mine waste gas and industrial energy efficiency projects," RepuTex said on Monday.
