wooduk you are getting into interesting territory now. Australia...

wooduk you are getting into interesting territory now. Australia reports on two levels, one to the UN FCCC that includes all sources and sinks inlcuding soil carbon and the national forest extent. Australia also reports on the Kyoto accounts. The UNFCCC is simply reproting whilst the Kyoto accounts include a penalty of 1.3 tonnes over and above every tonne of CO2e that we miss our targets by (108% of 1990 levels). Australia elected not to report on soil carbon or managed forest carbon which form part of Article 3.4 and with very good reason, as a nation we would have been responsible for emissions from dorughts and bushfires and this responsability would then have to be bourne by other sectors of the economy. So we do not report.

You can invest or become a project developer in Australia for voluntary markets outrside of the Kyoto national accounts through such programs as the Voluntary Carbon Standard. The VCS is a well recognised standard and widely sought after. The American scheme is looking to pre approve VCS credits as useable offsets in thier cap and trade. This is starting to see funds flow to projects that will create VCS credits such as avoided deforestaion and better agriucultural land managment.

The Australian scheme allows forests to voluntarily opt in, it is not mandatory. The accounting framework for forestry sets the basline at 2008 so a forest must exceed the amount of carbon on site in 2008 before it can create permits under the Australian ETS, this is a significant disadvantage to forests that were near harvest in 2008.

The ETS also prevents the export of permits to other countires until 2020 but allows unlimited imports so Australian forestry assets should not be that popular with overseas carbon investors unless they want to play the Australian market. There are a lot of good reasons to get into the Aus market, we have sound land tenure, good justice system, stable politcs and economics as well as a wealth of professional talent to run the forests. We have seen many cases of problem projects in developing nations where this is not the case and projects have run over budget.

So why would an American firm be interested. Well if the current internaitonal negotiations continue as expected we will see the Reduced Emissions from Deforestation and Degredation ( REDD) come into play and lots of carbon can be got fairly cheaply from protecting or better managing old forests, this will have a two fold effect. THe first is we will see and increasing protection offorests on a national and regional scale in South East Asia, in particuluar Malaysia, Indonesia and PNG and also in other areas such as Brazil and the Congo. This is going to severly deplete the worlds wood supply forcing up timber supply cost, secondly it will see a reduciton in the amount of farming land coming into the system. 60% of the deforestiaon in Brazil is converted to beef farming, so with a growing world population and an increasing demand from the Chinese and Indian middle class for high protien meat we will see an increase in the demand for food production. If they get the timing right they will be able to harvest the trees and then make a decison about converting part or all back to farmland.