Estimating the financial risks of Andropogon gayanus to greenhouse gas abatement projects in northern Australia

Abstract

Financial mechanisms such as offsets are one strategy to abate greenhouse gas emissions, and the carbon market is expanding with a growing demand for offset products. However, in the case of carbon offsets, if the carbon is released due to intentional or unintentional reversal through environmental events such as fire, the financial liability to replace lost offsets will likely fall on the provider. This liability may have implications for future participation in programmes, but common strategies such as buffer pool and insurance products can be used to minimize this liability. In order for these strategies to be effective, an understanding of the spatial and temporal distributions of expected reversals is needed. We use the case study of savanna burning, an approved greenhouse gas abatement methodology under the Carbon Farming Initiative in Australia, to examine potential risks to carbon markets in northern Australia and quantify the financial risks. We focus our analysis on the threat of Andropogon gayanus (gamba grass) to savanna burning due to its documented impacts of increased fuel loads and altered fire regimes. We assess the spatial and financial extent to which gamba grass poses a risk to savanna burning programmes in northern Australia. We find that 75% of the eligible area for savanna burning is spatially coincident with the high suitability range for gamba grass. Our analysis demonstrates that the presence of gamba grass seriously impacts the financial viability of savanna burning projects. For example, in order to recuperate the annual costs of controlling 1 ha of gamba grass infestation, 290 ha of land must be enrolled in annual carbon abatement credits. Our results show an immediate need to contain gamba grass to its current extent to avoid future spread into large expanses of land, which are currently profitable for savanna burning.