Drought Risk to Soil Carbon Projects

The scenario

Landholder ABC Farming Co. has a 2000-hectare soil carbon project in the Mudgee region of NSW. After first exploring their opportunity with a CFF feasibility report, ABC takes a DIY approach to the soil carbon project, with some extra CFF services to provide more support as needed. 

Utilising CFF guidance on project rules and their agronomist’s strategic advice to build soil organic carbon (SOC), ABC write their Land Management Strategy, CFF registers the project with the Clean Energy Regulator (“the Regulator”) and together they start detailed project planning and mapping. Upon successful project registration, ABC completes soil baseline sampling and commence their new land management activities to build soil carbon. 

ABC are diligent in their ongoing land management and record-keeping, they have regular consults with their agronomist and enjoy favourable conditions at the farm. So, after their first couple of reporting rounds and subsequent credit issuances at years 3 and 8, they see a 0.2% increase in SOC on average across a 1-metre soil depth. This earns them roughly the amount of modelled carbon credits they expected at this point in the project – in this case, 70,000 credits. ABC holds on to these credits as a buffer against risk (rather than selling them). Unfortunately, in year 10, drought strikes the Mudgee region and persists for almost four years. 

In response, ABC realigns their short-term goals from a ‘building SOC’ management regime to a ‘maintaining SOC’ regime. ABC destock their project areas and managed to maintain ground cover. As ABC is obligated to report to the Regulator at least every five years, they monitor soil carbon and report as strategically as they can in year 13 when rainfall starts to improve. Nonetheless, the Regulator finds that their soil carbon has, on average, dropped halfway back to the baseline, and accordingly, at year 13, they are in a deficit position for 35,000 of the carbon credits previously awarded. 

In year 14, rainfall picks back up to long-term averages, and the landscape slowly recovers, but what impact do the drought years have on ABC’s soil carbon project?

What the Regulator says

Prolonged drought is known as a “natural disturbance or reversal event” when it affects at least 5% of the project area. The Regulator will manage the implications of such an event with some flexibility. The Carbon Credits (Carbon Farming Initiative) Act 2011 (the legislation underpinning the ERF) sets out exemptions under which a Proponent may not be liable to relinquish due to certain causes, as follows:

• the reversal event is a ‘natural disturbance’, or
• reasonable action has been taken to reduce the risk of bushfire, or
• conduct was engaged by another person that was not within the reasonable control of the project proponent.

In the case of drought, provided ABC notify the Regulator within 60 days of a drought being declared, and they can show that reasonable actions were taken to reduce the impacts of drought on their project, then they have options.

Once rains pick up, ABC will need to show that SOC has, on average, returned to the pre-disturbance rate of 0.2% growth. Credit issuance – and credit recovery – are paused until this happens.

At the point that SOC levels begin to exceed the pre-drought gains, ABC can begin to claim new credits once more. However, their crediting period will continue to run while their land returns to its pre-drought state. In other words, ABC only can gain carbon credits within their original 25-year crediting period – no extensions.

The circumstances surrounding each reversal event will be assessed by the Regulator on a case-by-case basis against the three criteria above. As the use of language such as ‘reasonable’ is not prescriptive, we recommend that landowners conduct best-practice risk management by undertaking suitable/precautionary measures to protect their carbon stock (i.e. follow the measures outlined in your LMS, destock where available, etc.). These actions will put you in good stead, and may exempt or limit the amount of carbon credits you have to relinquish.

Getting on top of  drought risk from the get-go

Here are some hot tips to minimise the chance of getting caught out in drought:

Rainfall in your region

It might go without saying, but let’s spell it out – we don’t recommend pursuing a soil carbon project unless you live in an area that has long-term, consistent annual rainfall projections of well above 300mm per annum, or have access to reliable irrigation. Below 300mm, it is unlikely that soil carbon can be increased significantly. Sufficient, reliable rainfall is crucial to sequestering soil carbon as it is a key driver behind root growth.

Order a feasibility report

Leading on from the last point, have CFF undertake a feasibility report for you. We’ll unpack key project risk and success factors, and let you know how your project stacks up with low yield and higher cost, all the way through to high yielding and lower cost scenarios. In other words, if the outcomes of the worst-case scenario don’t align with your objectives, you should consider whether a soil carbon project is right for your farm.

Make a plan with your agronomist 

Our feasibility reports are made more focused and useful with the input of your agronomist. No one knows the land better than you and your local advisors, and you should seek their advice on the most drought-resilient strategies to build durable soil carbon.

Shorter projects mean lower risk

You’re obligated to maintain soil carbon increases for either 25 or 100 years – this is called your project permanence period. When you register your project, you’ll provide the Regulator with your plan to protect the carbon you’ve sequestered and credited for the permanence period you elect. While your credits are reduced by 20%, we suggest you consider a 25-year permanence period to also reduce your obligations to maintain carbon and help minimise the risk of your project.

Hold your credits

If drought occurs, you must notify the regulator within 60 days and take reasonable steps to reduce carbon stock loss. If you don’t, or you’re unable to return to your pre-drought SOC levels within your nominated permanence period, you may need to pay back any accrued credits to the Regulator. We recommend strategically holding onto some of your carbon credits as security for this, rather than having to purchase credits on the voluntary market if you can’t build back all soil carbon gains. Make sure this is part of the bargain with any finance providers and again – make sure you can live with the risk of a low yield scenario before proceeding.

Understand your contracts

Understanding your contract with your carbon developer is a crucial step to reducing the added pressure if a drought (or bushfire) was to occur. When you work with the CFF, you come away with 100% of carbon credits (we don’t take a chunk), so in the event of a reversal, you have access to all the credits you’ve accrued on the project and there is no obligation to continue with our services at any time during the project.

Destocking

The Regulator appreciates that drought circumstances require farmers to adapt. As such, destocking is permitted during relevant drought periods to allow you to reduce the pressure on your land.

Be strategic about when you test your soil 

Soil carbon will naturally and seasonally fluctuate throughout the life of the project. To claim the highest number of credits it can be helpful to time your reporting when your SOC is naturally high. Instead of only sampling when each offset report is due, choose to sample your soil on a more regular basis and then strategically select when to submit your reports. For example, if you start to take samples on an annual basis from year 3 onwards, you can time your reporting to maximise the impact of strong seasonal SOC levels – rather than reporting at a low point. 

But isn’t soil sampling expensive? We recommend using spectrometry tools such as Hone Carbon to slash your costs over the long term. Purchasing your own tool will give you the flexibility of taking samples – and reporting to the Regulator – when it suits you and your project.

Adjust Your Project Areas

Another quick point on that – if your spectrometry readings indicate SOC isn’t building as it should across your project areas, you can remove underperforming parts prior to your first reporting round. In other words, you can vary your project area to minimise the risk of poor performance and reversal and maximise carbon gains. Designing your project to have more Carbon Estimation Areas will grant you a greater level of flexibility here. 

Basically, with the right approach, you can significantly reduce the risk of low rainfall derailing a feasible soil carbon project. 

Keen to explore things further? 

Check out SoilCRC’s fantastic factsheets on managing soils during and after drought in different contexts:

• Cropping systems
• Grazing systems

Ready to find out more?

Explore our range of educational resources in our Carbon Farming Education Hub where we frequently publish educational articles, webinars, and guidebooks. 

When you’re ready to explore the feasibility of undertaking a carbon project on your property, email us at [email protected] or give us a bell at (08) 6835 1140 to be connected with one of our project facilitators.