Voluntary carbon market opportunities – soil carbon management in New Zealand
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Executive summary
Carbon is stored in agricultural and other soils through natural processes that can be managed so as to increase the rate of accumulation and the capacity of land to sequester soil carbon. The potential for land management practices to promote carbon sequestration presents opportunities, especially within the agricultural community, for land owners and managers to become active contributors to global efforts to combat climate change. Where it is possible to earn marketable carbon offsets based on changes in soil carbon storage, carbon markets provide monetary incentives for landowners and managers to explore and implement profitable soil management practices. New Zealand’s Ministry of Agriculture and Forestry (MAF) is interested in knowing more about how a soil carbon offset regime might be structured to create an incentive system that will induce those in the agricultural community to pursue practices that will increase carbon stored on New Zealand’s cropland and grazing lands.
This report offers an overview of existing carbon offset programmes and provides an analysis of the key programme elements relating to soil carbon offset credibility and applicability to New Zealand. A total of eleven voluntary and compliance offset programmes were evaluated based on the credibility of their methodology, verification and certification, registry, and monitoring and reporting protocols. Offset programmes were further evaluated for their applicability to New Zealand and were assessed according to whether they included grazing and cropland management practices, their potential transaction costs, their infrastructure requirements, and their accessibility for New Zealand farmers. Discussion and evaluation of the key elements of each programme combine to provide lessons learned that can aid in decision making regarding New Zealand’s possible development of a soil carbon offset programme.
About offset schemes
Offset schemes allow emission reductions or increased sequestration that are achieved voluntarily to be bought and sold as credits or offsets to parties that are required or otherwise have an interest in reducing the environmental impact of their activities. Offset sales can take place in either the compliance or voluntary market. A critical difference between offsets sold in voluntary vs. compliance markets is the strictness of offset standards that apply. Offsets intended for use in the compliance arket must employ very stringent standards to ensure credibility and confidence that they are fully compatible with emission reductions required under a regulated greenhouse gas trading (GHG) system. As a result of these higher standards, offsets sold in compliance markets are typically more expensive than their voluntary market counterparts.
In establishing credibility, an offset programme’s requirements regarding GHG accounting methodologies, monitoring and reporting protocols, verification and certification standards, and registry system are the most important.
Accounting methodology
Offset systems devise GHG accounting protocols to assure that emission reduction (or increased sequestration) credits issued under the system are real, additional, and permanent. In addressing whether reductions/sequestration are real, some accounting methods require the actual measurement of carbon changes, others might allow estimates based on the outcome of modelling, and still others might allow project developers to use standard rates and other simplified procedures. All else equal, the farther removed is a project’s accounting methodology from actual measurement, the more uncertain are the emission reductions/sequestration and the less credible are emission reduction/sequestration credits based on the project. Since measurement is often not feasible, when issuing marketable credits, many programmes deal with uncertainty by making downward adjustments to estimated emission reductions/sequestration.
Emission reductions/sequestration are considered “additional” if the actions that occur as part of the project are undertaken because of the project and the potential to sell the emissions reductions. If these actions are not truly additional, then offsets would be bought from a project owner who would have reduced emissions or increased sequestration anyway, even in the absence of the payment for credits. In such a case, emissions will not be reduced by the offset sale, but the sale merely subsidises actions that would have occurred anyway. Several “tests” are often used in assessing the additionality of individual projects. These tests can include:
- Regulatory test – whether the actions undertaken as part of the project are required by regulations or industry standards.
- Investment or financial test – whether the project is “profitable” without offset sales and so would have been undertaken without the additional financial incentive provided by the sale of the offset.
- Barriers test – whether there are barriers to reducing emissions that are overcome by the project and so the project is considered additional.
- Common practice test – whether the project employs technologies that are commonly used and so might not be additional or, alternatively, goes beyond those practices and so would be considered additional.
Offsets based on sequestered carbon are often viewed as non-permanent because of the potential for stored carbon to be released if the practices responsible for enhanced storage are not maintained or if natural or other disturbances result in the release of stored carbon. Offset systems deal with the issue of permanence in various ways. Some require very long commitments from project developers; others have requirements for developers to purchase insurance against losses. The Voluntary Carbon Standard, one of the programmes reviewed for this study, has created a “buffer reserve” system in which carbon credits are held in reserve as a back-up to cover unexpected releases of stored carbon.
Monitoring and reporting
These types of protocols involve requirements for tracking and reporting activities over time. As a rule, monitoring and reporting protocols associated with carbon offsets are less burdensome than those required when offsets involve changes in industrial processes or similar activities.
Validation and verification
Validation and verification standards specify the rules that must be followed to assure that emission reductions/sequestration projected for a project during the design phase are realized once the project is implemented. Validation involves the independent assessment of the soundness of a project’s design. Verification involves the process of determining whether the project is implemented as designed and performs as planned.
Contact for Enquiries
Sustainable Land Management and Climate Change
MAF
Pastoral House
25 The Terrace
PO Box 2526, Wellington
Tel: 0800 CLIMATE (254 628)
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