A bioeconomic model of carbon trading within an Australian grazing enterprise

The Carbon Farming Initiative (CFI) and other carbon trading programs have been promoted as alternative sources of income for agricultural producers, particularly those on marginal land. This paper presents the results of a bioeconomic model developed to compare the relative returns from a beef enterprise against changing regrowth management practices to sequester additional carbon and sell carbon offsets. The model is constructed based on a 1000 hectare parcel of land in Central Queensland and is calculated for two landtypes; Brigalow and Eucalypt. Assuming zero transaction costs and a 20 year contract period, a carbon-cattle enterprise has higher returns that a cattle-only enterprise at relatively low carbon prices for both land types. However, results are highly dependent on the underlying assumptions regarding transaction costs, previous clearing methods and opportunity costs of cattle production. The impact of these variables and alternative policy settings were evaluated using an optimization model which identifies the optimal allocation between the two enterprises at different carbon prices. Whilst the model indicates that some beef producers could increase returns by supplying carbon offsets, the results are highly variable and do not account for the risk and uncertainty associated with long term contracts to supply a non-market good into a new market