The influence of crediting and permanence periods on Australian forest-based carbon offset supply

Abstract

Governments globally are developing increasingly ambitious carbon emissions reduction schemes that include significant emissions offset credits for forest-based carbon sequestration. Such strategies can present significant challenges in highly modified and intensively farmed regions where forest land use opportunity and establishment costs are high. This article evaluates the economics of land-use change via active afforestation for local carbon abatement in the Australian state of South Australia, a region with high supply costs representative of long-established temperate farming regions. We found that there is no economically viable abatement below $38 tCO2e−1, however up to 154 Mt CO2e of abatement could be available up to prices of $50 tCO2e−1.Variation in current Australian Emissions Reduction Fund (ERF) policy parameters related to permanence and crediting periods were also assessed. Recent ERF contracts involve a 100-year land-use change commitment (permanence period) and a 25-year crediting period where payments for growth in carbon from the land-use change is contracted. We compared outcomes of this arrangement to a scenario with equal 100-year permanence and crediting periods. We found substantial differences in carbon supply at some price points for a 25 rather than a 100-year crediting period. Under ERF parameters the first economically viable revegetation options occur at $42 tCO2e−1, however, we found a 69 percent reduction in economically viable supply at a carbon price of $50 tCO2e−1. The results highlight the role offset crediting policy can have on dis-incentivising land-use change and the need for landholders to be compensated fully for temporal opportunity costs.