“You see what is happening in Europe. There is hysteria and some confusion in the markets. Why?… Some people are speculating on climate change issues, some people are underestimating some things, some are starting to cut back on investments in the extractive industries. There needs to be a smooth transition” – Vladimir Putin, 5Oct21
Energy prices are on the move globally. Gas prices have gone parabolic in Europe, China is facing record coal prices, even oil is threatening to return to post-GFC highs. And the transition is only getting started.
The whole point of taxing carbon is to price in the ‘negative externalities’ of fossil fuels. The intended result is to drive prices higher for the offending fuels, making renewables more competitive to encourage switching and innovation. Given our dependence on dirty energy, it was always likely to be painful.
It’s a little like the switch from single-use plastic bags. There was a realisation that the collective burden of these disposable conveniences was being carried by our sea-faring friends. We needed to find ways of changing people’s behaviour to protect our environment, so we banned the bag. The embedded cost was small change in the scheme of things.
The same mechanism is at play with carbon emissions, though the costs of transition may be far greater. We need to change the way we create the energy that drives our global economy. Radically increasing the price of fossil fuel derived energy is the price we pay, until our alternatives become cheaper.
Agriculture is at the next frontier for pricing externalities. While the popular focus may have been on carbon emissions, there is an emerging global awareness that we’re in the late innings of a global biodiversity crisis. The numbers on this can’t be disputed, as the impacts are so very visible. For many species it’s an extinction event, but it’s the cascading impacts on ecosystem stability that are harder to predict. If we are to believe Hollywood, the apocalyptic tipping point is way too close.
Source: IPBES, 2019 “Global assessment report on biodiversity and ecosystem services”
So while farmers are being encouraged to consider entering into carbon sequestration transactions, it’s their overall farming and land management practices that will increasingly come under scrutiny. Farmers will be held accountable by consumers, either directly or through the supply chain, for the way they manage our environment.
Of course, externalities can be both positive and negative. We’re all likely to benefit from a farm that encourages the recovery of our native flora and fauna. Even better if this farm joins with their neighbours to create landscape scale impacts. These are the sort of actions that we want to encourage in our farming communities. These are the impacts that we want to reward through environmental and green provenance markets.
The pricing of externalities is partly a function of our improving capabilities in collecting and analysing data. If we can measure parts per million of atmospheric carbon, then we can reward actions that combat its rise. A challenge for carbon farming transactions is that the evidence for outcomes must be measured and captured as credible data. Data is quickly becoming the vector through which farmers will be held accountable.
There are worrying thought bubbles being trialled when it comes to farm data. It’s been argued that such data is a public good, and that farmers might be compelled to collect and share it, as custodians of the land that belongs to all Australians. Then there’s the unquenchable corporate thirst for data that they can use to monetise their relationships with farmers. In the context of the green transition, these trends are where the faultlines lie. Farmers must find ways to strengthen their hand in the negotiations over farm data.
These trends – holding farmers accountable by pricing externalities as measured by credible data – are building momentum in Australian agriculture. You can see this in the way that the Commonwealth government has introduced biodiversity pilots, and in state government programs like Queensland’s Land Restoration Fund that are implementing ‘carbon plus’ programs. Then there are the growing number of corporate’s that are seeking to be net-zero by 2030, and are increasingly looking to pay premiums for carbon with biodiversity gains.
This is why the Regen Farmers Mutual is such a critical piece of infrastructure for Australian farmers. It offers a way for farmers to create a farmer-owned broker that represents their collective interests in environmental markets. And importantly, it enables farmers to retain control of their data, and to share it in ways that can demonstrate their stewardship of the land. These are the seeds to be sown if we are to have a smooth transition for our farmers.
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