Remind me what the plantation forestry method is all about?
In a nutshell, projects falling under this category are run under the Emission Reduction Fund’s plantation forestry method. A plantation project aims to accumulate or sequester carbon as trees are grown and managed within a plantation across a 25-year crediting period. By building up carbon stocks within the plantation and its products, you are removing carbon from the atmosphere. This removal earns you carbon credits. Our Planation Forestry Carbon Projects 101 resource spells things out in greater detail and is definitely worth a read.
What are the four ways to earn carbon credits?
Using the plantation forestry methodology, you can earn credits by undertaking one of four different practices:
- Establishing a new plantation
- Converting an existing plantation from short to long rotation
- Continuing plantation activities on land that would otherwise convert to a viable, non-forested use
- Transition your plantation to permanent forest
Each of the above has its own associated Schedule, with distinctive eligibility requirements that you can find here. Eligibility can be a bit complex, so contact our friendly team today if you have questions.
Okay, so now to get to the nitty gritty. Will it turn a profit?
Assessing the viability of a plantation forestry project on your farm is a crucial early step in determining if it is right for your land. With the launch of the Decision Tree Program, early scoping is even easier if you are considering this as an option.
Working with farmers over the years on forestry projects across WA, Wendy was able to detail which factors are most important in figuring out if establishing a plantation makes sense for you. To illustrate, we “visited” two separate properties in two different areas of southwestern WA. One in the Wheatbelt and the other near Collie. Both operations could see farm-wide benefits from using trees as a shelterbelt for livestock and to reduce erosion, while also earning carbon credits and an income from the wood at its end of life.
In case you missed the webinar (you can still watch it here) or want the abridged version, we’re sharing the two properties and each of their projected payouts below.
It's important to note that the cost and profit projections are benchmarked for accuracy in southwest Australia (Perth to Albany) and will vary for other parts of the country. These financial metrics are the default settings in the tool – but don’t worry, if you have an understanding of costs and timber prices in your region, you can edit assumptions in the tool to reflect your context.
Overall viability of the project will depend predominantly on rainfall (for both carbon and timber pricing), distance from a mill to get product to market and overall scale. Generally, to be economical a plantation should be no further than 200 km from a mill.
With any project, but especially a carbon plantation forestry project, it's about getting trees in the right places, at the right scale with the right species. Different areas offer different yields, risks and payouts for both timber and carbon credit earning potential. The Decision Tree tool encapsulates these specific factors into its functionality but does not include opportunity cost. You know your farm better than anyone, and where trees will help bolster its ongoing operations. The Decision Tree tool helps to cut through the confusion and presents the potential profit of layering carbon credit income onto the sale of wood products produced from a crop of eucalyptus or pine trees.
Let’s have a look.
Indicative Scenario #1: Collie, medium revenue scenario
| Region |
South West, WA |
| Farm size |
158 ha |
| Project size |
16 ha |
| Rainfall per annum |
928 mm |
| Climate zone |
Mediterranean Climate |
| Project strategy |
Plant and manage a 25-year rotation Pinus radiata plantation under Schedule 1 of the Emissions Reduction Fund (ERF)’s 2022 Plantation Forestry Method. |
| Total Expected Revenue |
$1.04 M |
| Total Expected Costs |
$704,400 |
| Modelled Profit |
$337,469 |
High level assumptions
- $35 static carbon price and mid-range timber commodity prices assumed
- Factors in standard ERF deductions to carbon credits, including 25% in total deductions for a long rotation plantation with a 25 year permanence period
- Total expected costs and modelled profit assume sale of wood products and carbon credits less mid-range plantation establishment, management, harvesting, transport and carbon compliance costs
- Net Present Value is based on a discount rate of 7%.
Collie is a very popular and sometimes lucrative place to grow commercial trees. Landowners have had success with plantations of blue gums and pine due to good rainfall, growing conditions and market proximity. In this situation, it would appear to make sense from a financial standpoint to integrate trees into the farm.
Working in establishment, maintenance, harvesting and transport costs with thinning regimes and the projected sale price of timber as well as adding the carbon costs works out to a Net Present Value of $50,106 for the project. This is broken down into $811,436 in timber revenues generated from $471,400 in timber costs and $230,433 in carbon revenues generated from $233,000 in carbon compliance costs over the 25 years modelled. At this scale, working with an aggregator in order to negate carbon compliance costs and achieve a net profit in carbon of $230,443 would appear to be the most attractive option for carbon management (more on this option below).
Now let’s look at scenario 2.
Indicative Scenario #2: Kulin, medium revenue scenario
| Region |
Wheatbelt, WA |
| Farm size |
147 ha |
| Project size |
16 ha |
| Rainfall per annum |
333 mm |
| Climate zone |
Mediterranean Climate |
| Project strategy |
Plant and manage a 25-year rotation Pinus radiata plantation under Schedule 1 of the Emissions Reduction Fund (ERF)’s 2022 Plantation Forestry Method. |
| Total Expected Revenue |
$902,300 |
| Total Expected Costs |
$884,220 |
| Modelled Profit |
$18,084 |
High level assumptions
- $35 static carbon price and mid-range timber commodity prices assumed
- Factors in standard ERF deductions to carbon credits, including 25%in total deductions for a long rotation plantation with a 25-year permanence period
- Total costs and modelled profit assume sale of wood products and carbon credits less mid-range plantation establishment, management, harvesting, transport and carbon compliance costs
- Net Present Value is based on a discount rate of 7%
In the Wheatbelt, there are a lot of farmers with mixed wheat and sheep farms looking at putting in shelterbelts and considering if the carbon plantation method is right for them. In a low rainfall area that is far from any mills, for the scale of this project, it isn’t as commercially attractive as the previous example. Although the project generates a similar amount of revenue from the sale of carbon credits ($230,000), transportation and timber growth yields eat into the production value of the timber portion of the project. Overall, the project is only likely to generate positive returns if there are no carbon costs and timber prices increase over current levels. However, in the default setting, total timber revenues of $671,868 stem from $651,217 of costs resulting in a modelled profit of $20,651 over the 25-year period. For carbon, $230,433 in revenue is raised from $233,000 in projected costs. This works out to a Net Present Value figure of -$57,166 Again, looking at an aggregation option to negate the costs related to carbon credit compliance may make the carbon portion of the project more attractive.
For smaller farms, pursuing a carbon project in addition to commercial timber can add more cost than revenue when looking purely at dollars and cents. However, with a bit more scale, the picture changes dramatically. Additionally, feasibility is very regionally specific. Given the high costs of maintaining a commercial timber plantation in this example and the objective for long-term shelterbelts, it’s quite possible a permanent native reforestation project would be a better fit for this landholder. If this example aligns with your circumstances, and you could potentially scale up to a larger planting, the CFF team can help you understand your options.
If considering a project of less than 100 ha in south west WA, WAPRES and Wespine both have carbon aggregation options to complement a timber offtake agreement. This means that if you agree to a fixed price on the sale of your wood products to one of these companies at the outset, the aggregator will cover the costs for you to access your carbon credits. Under this option, even small producers can earn carbon credits from this method without the scale normally required to make it practical.
In summary
The Decision Tree tool is available to quickly assess the viability of establishing a new plantation, and we hope you now have a sense of some of the factors which affect feasibility. To find out more about what’s possible in your area and inform assumptions correct to your context, we recommend talking to your local timber hub today.
If your project looks viable, there’s likely more support available. If you're interested in learning more details about the Decision Tree grant (currently only available to South West Australia) you can find out what support is available by contacting Wendy directly.
* Please note that at this time, the Carbon Scout: Decision Tree tool is built out for Schedule 1 new plantation projects only. At the moment carbon yield settings for 25-year rotations of pinus radiata and eucalyptus globulus only are configured. Ensure you are subscribed to our newsletters as CFF announce additional calibrations for a wider range of Schedule 1 species in CFF’s own Carbon Scout tool in coming months. Carbon Scout will also be available for native reforestation and soil carbon projects – so stay tuned!
The Carbon Farming Foundation (ABN 67 645 498 004) is a Corporate Authorised Representative (AFS Representative No.001298535) of True Oak Investments Ltd (ABN 81 002 558 956, AFSL 238184).
The information in this article is general financial product advice only. It does not take your personal financial objectives, situation or needs into consideration. We recommend that you read our Financial Services Guide and consider seeking independent advice before making a financial decision.
Source: The Carbon Farming Foundation with Wendy Perdon