8.3 - The carbon market could be leveraged to deliver environmental restoration

There is an opportunity to better leverage other schemes that promote environmental restoration. Australia’s carbon market, underpinned by the Carbon Credits (Carbon Farming Initiative) Act 2011, has successfully promoted environmental restoration since its inception.

To participate in the carbon market, farmers and other land managers can change the way they use their land to absorb and store carbon dioxide. Land is managed in accordance with prescribed rules (called methods) to earn carbon credits. These credits are then on-sold either to the government or another purchaser (for example a philanthropic investor or a company voluntarily purchasing to enhance its 'green' credentials).

Carbon credits can be earned in many ways, including by allowing or actively promoting the restoration of native forests. Since 2013, when the rules for these activities were put in place, more than 2.3 million hectares of land have been restored¹²⁵, expanding the area of natural habitat.

To date, most restoration activity under the carbon market (by area and credits generated) has occurred in drier regions of Australia¹²⁶, where both biodiversity and the numbers of threatened species are lower. In these areas, the returns from using land for carbon are often greater than returns from other land uses.

The Australian Government has recently agreed to carbon market reforms that are intended to increase the competitiveness of carbon farming when compared with other land uses. These reforms include the ability to use different carbon methods on the same parcel of land (for example, for one area to be credited for the carbon sequestered in vegetation and soil). This is known as 'stacking' carbon credits. These reforms will result in a shift in restoration arising from the carbon markets into areas of higher biodiversity, and higher numbers of threatened species. This is because the returns from 'farming carbon' will be greater than alternatives, resulting in land use change to deliver environmental outcomes.

The value derived from using land to deliver environmental outcomes can be further increased if credits from a biodiversity market can be 'stacked' on top of carbon credits, with one area of land delivering both carbon and biodiversity outcomes.

Although not covering the entirety of the biodiversity habitat types likely to be required, enhancing the links between the carbon market and biodiversity markets can shift restoration efforts into many areas of higher biodiversity, delivering multiple benefits for the community including:

• an increase in the overall sequestration of carbon over time—because the regions where carbon and biodiversity farming is a commercially viable land use would increase
• the recovery of threatened species—because the area of habitat necessary to their survival would increase.

It would also lower the overall cost of achieving carbon and threatened species outcomes because both benefits can be realised from one activity.