Can the CFI survive

If the government's carbon tax legislation gets through parliament, the opposition has committed to repeal or substantially modify it if it wins the next election, as appears likely. On the other hand the Carbon Farming Initiative, which is already through, will probably survive.

The opposition voted against the final bills in parliament, but this was due to disagreement about details rather than the concept of offering incentives to landowners to cut greenhouse gas emissions and store carbon dioxide in the soil. Rather than repeal the legislation, it has indicated it will try to improve it. The concept also has support in farming circles, including the National Farmers' Federation.

Thus it may be that the CFI becomes the only surviving outcome of the Gillard government's efforts to reduce carbon dioxide emissions.

Whether it can survive without improvements is another matter. Although the government says it is designed to stand alone, it is intended to be driven by demand for carbon credits as offsets for carbon emissions.

There is a voluntary market for these as companies seek to become carbon neutral, but it is nowhere near enough to underpin the CFI. Without the carbon tax and its ETS replacement, there will be no mandatory domestic market for credits.

Internationally, with the rest of the world backing away from similar schemes and no prospect of a binding international agreement to replace Kyoto when it lapses next year, there may be little or no international market either. At best some international companies might regard Australian carbon credits as more sound than credits from other countries.

As I have previously discussed, it is doubtful whether most landowners would consider the CFI scheme appealing as it is currently structured, unless carbon credits become relatively valuable. Perhaps a few tree-changers with no interest in the future value of their property will use it as a personal statement, but for most people rules such as prohibitions on harvesting trees for 100 years, limits on clearing for fire control and the requirement to replant trees if they are destroyed will be too onerous.

This begs the question as to how the scheme might be modified to make it broadly acceptable to landowners, creating an incentive for them to mitigate greenhouse gas emissions without compromising food production or farm productivity, or crippling the economy and costing taxpayers a fortune.

I believe it is impossible without changes to the carbon accounting rules, something that could emerge after the expiry of the Kyoto treaty. Amongst other things, Kyoto Protocol rules assume that carbon dioxide can only be stored by trees and not other vegetation; they assume the carbon dioxide absorbed by pasture and crops is immediately released when they are eaten or harvested; and they assume that the carbon dioxide in a tree is released on the day it dies no matter whether it remains standing for another 90 years, is sawn into timber and used to build a house, eaten by termites or burnt for firewood. But if it dies in 100 years and one day, it is assumed no carbon dioxide is released at all.

If the rules recognised all vegetation as a potential carbon dioxide sink, and rapidly growing vegetation absorbed more than mature vegetation, perhaps land owners could be permitted to clear land of scrubby regrowth and replace it with productive pasture or crops without becoming criminals. And if the rules recognised stored carbon dioxide in things like timber and grains, agricultural output could potentially increase at the same time as carbon dioxide absorption.

At the moment rules such as these would not be recognised outside Australia, but quite a few countries are unhappy with the carbon accounting method and would support an agreement to change them.

But even with such rule changes there would be little reason to get involved in the CFI without economic incentives. True, some people believe human-induced climate change is sufficient reason in itself to warrant personal action, but they are a dwindling minority.