Let’s take a high-level look at some common carbon project risks and smart ways to manage them.
Important context for your general reading
Here at the CFF, we know our way around carbon project management and compliance. And while we can provide useful guidance and connections, it’s not our role to advise on how your business should arrange its legal and financial affairs, nor provide agronomic or forestry specialist advice for your project. We know your local experts are better placed to do that – and won’t rack up big travel bills for the trouble.
So, think of this blog as a starting point for your exploration of project risk mitigation. If you’re getting serious about carbon farming, we encourage you further your knowledge and hit up your trusted local advisors for their take.
Managing risk to reap rewards
It’s no secret that there are risks involved in carbon farming (as there are with any agricultural practice or other investment!). Let’s take a high-level look at some common carbon project risks and smart ways to manage them.
On the hunt for specific info? Here’s a quick summary of the risks we’ve covered:
- Poor preparation
- Opportunity cost and loss of productivity
- Poor design and data management
- Poor timing
- Poor performance or carbon reversal
Risk #1: Poor preparation
Risk factor:
Jumping in blind to a carbon project is no one’s idea of a good time. So, what sort of homework should you be doing when exploring your potential opportunity?
Success factors:
- Build your carbon literacy: Our CFF FAQs and Education Hub are a great place to start. Sign up for our newsletter to make sure you don’t miss a trick.
- Understand the regulatory environment: CFF have experience with the Reforestation, Soil and Plantation forestry methods eligible through the ACCU Scheme.
- Understand your starting point and your objectives: Is your operation a net carbon emitter or a carbon sink? Do you want to tell a story to your customers about land restoration and biodiversity or are you more interested in unlocking a new revenue stream? Clarifying the key objective of your carbon project will help you immensely on your carbon journey. Check out our blog on carbon neutrality for some useful context
- Make use of free tools to see what’s possible: There’s a lot out there to help you suss your baseline and hone in on your opportunity! We’ve linked some of the free tools we find useful at the bottom of this post
- Do a CFF feasibility assessment: Whether it’s environmental planting, soil carbon, or plantation forestry that’s caught your eye, our feasibility services are well worth your time. Providing a comprehensive analysis of eligibility, suitability, yield, costs, revenues and cashflow, our feasibility reports include everything you need to make an informed choice on proceeding with a carbon project and can get key stakeholders (like the bank) onboard.
- Draw on your network and do your due diligence: The advice of local experts can help us refine the assumptions in our feasibility modelling and give you additional insights into the financial and practical implications of running a carbon project. Your farm advisor, agronomist, accountant, lawyer, local Landcare or NRM all have valuable perspectives.
Risk #2: Opportunity cost and loss of productivity
Risk factor:
Carbon farming is shown to have some impressive benefits to soil health, drought resilience, and erosion management, but surely you shouldn’t be “locking up land” that could be agriculturally productive, right?
Success factor:
- Strategic Integration: We’re in favour of farm productivity being central in your land management strategy. In fact, carbon farming projects should be implemented to increase water retention, grow pollinator capacity, or provide windbreaks or shade for stock.
It all comes down to what we call “strategic integration” or the tactical choice and management of underutilised pockets of land to grow carbon and unlock a new revenue stream at the same time – not locking up viable land. A carbon project is a sizable commitment, so it needs to align with – and provide value to – the rest of your operation.
Risk #3: Poor design and data management
Risk factors:
It might be tempting to take the “easy” route, keeping project design very simple and taking a lax approach to tracking your carbon sequestration progress. But it’s likely you’ll want to consider a more flexible and proactive path.
Success factors:
- Flexible, informed project design: It’s important the design of your project reflects on-ground operational realities and your objectives. For an example of project design considerations, particularly when it comes to mapping a soil carbon project check out our soil carbon project guide here.
In the soil example, having more project areas (or “CEAs”) does come with greater expense when it comes to soil testing, but it allows you much greater flexibility to implement diverse management strategies and optimise project performance over time.
The CFF project delivery team can help you understand this risk and provide recommendations (like pre-baselining, see Risk #5 below) to get the balance between cost efficiencies and flexibility right.
- Sound record keeping: Having a good record-keeping process to track on-ground conditions, your activities and project emissions helps particularly when it comes to saving time and money on project reporting, and for managing the impacts of carbon reversal events (more on that in Risk #5 below).
Risk #4: Poor timing
Risk factor:
When it comes to planning and implementing a carbon project, timing is crucial. Without carefully considering and planning around a full and reasonable project timeline, you could set yourself up for disappointment or even sub-optimal returns.
Success factor:
Good timing is simple, and it comes back to mitigating Risk #1 – educate yourself, be proactive and take on board the recommendations of advisors. Again, we’re here to help! Here are a few milestones to make sure you take into account.
- Registration preparation: For most projects, you’ll need to register both a “client’ or project proponent to run your project, and then the carbon project itself. Both processes aren’t hard, but depending on how complex the entity or project is, they can take time – our team can give you an estimate based on your situation.
- Regulator processing times, and implications for project “newness”: Once you’ve hit submit, the ERF can take up to 90 days to process your applications. For a lot of projects, you must have project approval before commencing any activities associated with your project to ensure that your carbon sequestration is “new” and “additional” to business as usual.
Such activities would include site preparation, seedling propagation, application of fertilizer etc. In other words, you need to make sure that your timeline for project commencement is reasonable and considers the regulator processing times.
- Tree planting windows: Different regions around Australia have different “planting windows” which indicate the best time to plant trees or undertake direct seeding. Seedlings take time to propagate, and seed supply needs to be secured, but both activities again need to happen post-project approval– so it’s critical to work back from your planting window to registration approval and make sure there’s enough time to get the job done.
- Soil baselining: While you can undertake soil baselining once your project registration is submitted (not approved) it does come with some risk. When reviewing your project documents, the ERF may wish you to vary your project, which may mean baselining would need to be redone. You’ll also want to schedule baselining when your soils are naturally lower in carbon to optimise project outcomes. So key considerations here include:
- weighing up whether arranging pre-project approval baselining is a risk you are comfortable with, and
- carefully working back from optimal baselining timing and making sure you have sufficient time to plan and register your project.
- Optimising offset reporting: For soil carbon projects, it’s wise to schedule offset reporting when carbon is at its seasonal best. You might like to consider purchasing your own remote soil carbon monitoring tool to help you get the timing right – we recommend Hone Ag’s handy spectroscopy tool for in-field carbon analysis, Hone Carbon.
Risk #5: Poor performance or carbon reversal
Risk factors:
Without careful management pests, weeds, fire risk, underperformance, onerous contracts, or the consequences of impulsive carbon credit sales, could lead to a poor-performing carbon project. With careful planning and CFF’s farmer-first model, these risks can be significantly mitigated.
Success factors:
- Arrange advisor inspections: Getting a forester or agronomist on site early on is a great move. They can advise on the best project design, strategy and management actions to maximise carbon yield and reduce risk from pests, drought, fire and other potentialities. Just make sure to chat to our team first to ensure a good site visit scope is agreed upon in advance – so you get what you need to improve your chances of delivering a successful project.
- Pre-baselining: Pre-baselining could be a wise move if you’re running a soil carbon project. By gaining a detailed understanding of soil profiles across your site at the outset, you can design your project to reduce the risk of variability in your soil samples, and maximise credits awarded at offset reporting. Our delivery team will help you chew this over and work out if pre-baselining is a smart move for your project.
- An air-tight permanence plan: Your choice of permanence period is an important one (see permanence period definition in our FAQs). You can choose to reduce your obligations to 25 years rather than 100 years and access fewer credits proportionally, but also significantly reduce your timeframe for risk management.
Once decided, your permanence plan is the place to outline the risk management strategies you’ve learnt and the actions you plan to take to ensure your project meets its permanence obligations.
By carrying out your planned actions and documenting that you’ve done so (see Risk #3 above), you’ll not only reduce risk but will also have sound evidence to demonstrate the actions you took to mitigate the risk. For example, by planning for and implementing debris removal and firebreaks for a reforestation project – you’ll reduce the risk of fire occurring and may exempt or limit the number of credits you have to relinquish (see next bullet point for more).
- Understanding the policy for relinquishment due to reversal: Events like bushfires or declared droughts are what’s known as a “natural disturbance or reversal event” when they affect at least 5% of your project area. In such a situation, the Clean Energy Regulator must be notified within 60 days of the event.
At this point, credit issuance and recovery are paused to allow you to build back lost carbon stocks to pre-disturbance levels within the crediting period. However, your crediting period will continue to run while your project returns to its pre-disturbance state i.e. it will not exceed its original 25 years.
If you are unable to return to your pre-fire carbon stock levels, you may need to pay back any accrued credits to the Regulator. However, 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.These three criteria will be assessed by the Regulator on a case-by-case basis. 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 guidance of fire management and permanence plans, maintain firebreaks, etc). These actions will put you in good stead, and may exempt or limit the amount of carbon credits you have to relinquish.
- Understanding your contract: When you work with us, you come away with 100% of carbon credits. We also give farmers the freedom to choose only those of our services that are best suited to their project goals, scale, and budget. So in the event of a reversal, you have access to all the credits you’ve accrued on the project (we don’t take a chunk) and there is no obligation to continue with our services at any time during the project. If customers decide to opt-out of their project prior to their first reporting round, we simply ask to be paid for any unbilled services provided to date.
- Careful carbon credit management: Holding credits may create tax obligations that you should discuss with your personal professional advisors, however, if it makes sense for your project, we advocate for holding on to some of your carbon credits rather than selling them all as soon as they’re issued. This provides some security for the risk of carbon reversal and also gives you greater flexibility for how you use this asset class in the future. For example:
- inset the credits for your own operation’s carbon neutrality,
- if the carbon price changes more than expectations, you can potentially sell if prices are higher, or hold if prices are lower until conditions become more favourable.
- use them in the negotiation of the sale of land attached to a live project.
We hope you’ve found this carbon project risk mitigation 101 a useful read. If you decide to use CFF services for your carbon project, we’ll take you through all these considerations as they arise to ensure that your project is geared for success.
Here are some of those useful tools and some further reading:
Free tools
- Looking for Greenhouse Accounting Frameworks for your primary industry? Check out Primary Industries Climate Challenge Centre’s Greenhouse Accounting Framework Tools
- Keen to see what kind of carbon project could work on your land? Check out CSIRO’s LOOC-C.
- Keen to understand biodiversity indicators at your place, and how carbon farming might have a positive impact? Check out CSIRO’s LOOC-B.
- Keen to see if plantation forestry stacks up at your place? Check out Decision Tree.
Other resources
With great general guidance around running carbon projects and deeper dives into specific risks, we reckon these links are worth a second glance:
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 hello@carbonfarming.org.au or give us a bell at (08) 6835 1140 to be connected with one of our project facilitators.
