FARMERS have been warned against selling their carbon in the current environment by a commodity market analyst, who believes the market isn't ready for it.
Speaking at the WAFarmers annual conference last Friday, Episode 3 founder and director Andrew Whitelaw raised a few red flags for agriculturalists considering entering into long-term carbon farming contracts.
While highlighting some of the risks of trading carbon in the current market, he said it was still worthwhile for farmers to conduct baseline carbon studies on their farms so they could receive profits later on.
"To sell carbon you have to prove you have created carbon that you wouldn't have created otherwise," Mr Whitelaw said.
- Subscribers have access to download our free app today from the App Store or Google Play
"Probably most farmers have planted trees and done environmental work - but if you have not baselined for that, you're not going to get paid for it... you shouldn't do anything environmental on your farm unless you have a baseline."
Mr Whitelaw said carbon markets were "basically at the behest" of governments and, while in Australia farmers weren't required to account for emissions produced on their farms, there was the potential for those regulations to be put in place by future governments.
"That's one of the risks you face - if you've sold all of your carbon you may have to buy back in at another point in time and what is the price for that?" Mr Whitelaw said.
"While the government is saying farmers won't have to do that, farmers in the Netherlands and New Zealand were also told by their governments that they wouldn't have to do these types of things.
"If you're signing up to a contract - these contracts are in many cases 25 years so that is a few governments that could change the rules."
In highlighting the possibility of farmers having to operate in a mandated, regulatory environment in the future, Mr Whitelaw said carbon was not a natural market, as the price was dependent on government decisions.
"If the government says you don't have to account for it - then demand drops, but if the government says farmers have to account for it - then demand increases - so at the stroke of a pen that government regulation could change," Mr Whitelaw said.
"It happened last March when the carbon market had gone through the roof and many people who had carbon credits and had sold them previously at a low level weren't happy and so the government changed the rules and said those particularly businesses were allowed to sell that market on again for a second time and the market fell by 40 per cent in a couple of days because extra supply got into the market."
READ MORE:
Mr Whitelaw suggested a carbon wallet could be useful for the agricultural industry, as it would give farmers the ability to trade their carbon at a later point in time.
He said it was often forgotten that the carbon market was just like any other market and therefore had an inherent market risk, using wheat as a comparison.
"In the wheat market we have speculators who are involved and don't necessarily use wheat - they just buy it because they want to make money or they sell it because they want to make money," Mr Whitelaw said.
"Last year during the height (of carbon prices), we saw more investment funds purchasing carbon and we are starting to see again another upswing as investment funds - still a small percentage, but enough to make a difference in markets when speculators get involved."
