Patient capital’s role in overcoming soil carbon caution

“I’d rather die than sell carbon.”

This was probably the stand-out quote from last week’s Australian Bureau of Agriculture and Research Economics and Sciences (ABARES) Outlook conference, which Agri Investor attended in Canberra.

It was said by Fiona Conroy of Knewleave Partnership, a 400-ha grazing operation running Angus cattle and fine wool Merinos in Victoria. Conroy, along with her husband, has been tracking her soil carbon levels for 30 years now.

While she has not been using external carbon project certifiers, with her figures used for internal accounting purposes to try and determine if her farm operates with net-zero emissions, her findings provide some salient data points for the wider sector as excitement over the potential for carbon sequestration in agriculture and the additional revenue streams it could provide continue to grow.

While Conroy had measurably increased her levels of soil carbon over time, it was clear that there was a tapering off of gains in the data she had recorded – the trend upwards, while still going upwards today, is now much less pronounced than when she began the process.

It was also striking that the amount of carbon in her soil was highly variable, in particular rising sharply in wet years and falling equally as sharply in dry years.

Now this will not be news to people involved in the sector or those who have any knowledge of carbon farming, but it does illustrate the point that soil is not an infinite carbon sink and projects must be carefully managed and regulated to ensure absolute trust and certainty that a carbon credit is worth exactly what it claims to be worth.

Conroy also showed off her tree planting regimen, having begun planting a variety of trees on her property 30 years ago. The benefits of this, too, were tailing off, with the trees already having passed their maximum sequestration potential and now sitting as carbon banks on her property.

This is, of course, completely fine – but for a beef and wool producer trying to ensure they are carbon neutral each year without having to buy offsets, it poses a challenge. The amount of sequestration she is able to count on from these trees is less than it used to be.

Which brings us back around to the quote at the start of this Weekly Letter.

Conroy said that, despite all her admirable work in sequestering carbon in soils and trees, and doing her best to measure it accurately, she would never sell it in the form of Australian Carbon Credit Units.

Why? Because the terms of a sale would not suit her. She argued that being locked into a minimum 25-year agreement to keep measuring and sequestering carbon could lock up her paddocks into a single use for the next generation to come after she has retired.

Which means that even if circumstances change and cropping becomes a more valuable use for that land, whoever is farming it next may find it very hard to alter its use from a given carbon project because of the long-term contract they would be stuck with.

The priorities of a family farmer are obviously different to those of a long-term investor or a large corporate, either of which may be managing a large portfolio of assets over a long period of time.

This neatly demonstrates the opportunity for long-term, patient capital, which can look at or even beyond that 25-year horizon and take on a carbon farming project that will make sense for both the environment and the bottom line. Even if it may not make sense for every small farmer to start selling ACCUs.