think climate. think change.
Department of Climate Change
Australian Greenhouse Office, March 2005
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For regional organisations and smaller forest growers, carbon pooling could provide a practical and effective option to participate in any market opportunities associated with carbon sequestration. Pooling enables a group of sequestration projects (which could be sourced from any number of land managers/owners) to be managed and marketed to potential investors as one. A strong advantage of pooling is that it provides economies of scale and increases the viability of a greater number of individual sequestration projects.
This Guide seeks to provide the information necessary for organisations and individuals to make informed decisions about carbon pooling options, including their strengths and weaknesses. The guide also aims to help people assess whether pooling is appropriate for them, or their organisation.
Carbon pooling is a way to group individual sequestration projects and manage them on a larger 'pooled' basis. This pool of projects may include both commercial forestry and environmental plantings. A carbon pool manager would manage the bundled carbon sequestration projects (i.e. enter into agreements for rights to the sequestered carbon with landholder(s)). Pool managers could then on-sell rights (e.g. shares in the carbon pool) to investors. Pooling requires the use of an investment vehicle to hold these assets or liabilities.
There is increasing interest in carbon sequestration activities among companies, governments, community groups, and land managers such as catchment management authorities, some of which are already undertaking investment in carbon sinks. Either for emissions offset or other purposes e.g. environmental plantings for water quality and biodiversity enhancement.
Regional organisations and other landowners can supply carbon sequestration as a way of tapping into an additional source of financial support for revegetation activities. Plantings for carbon sequestration can also deliver other benefits, such as erosion control, shelter, salinity mitigation, improved water quality or biodiversity enhancement.
Investors may consider that the purchase carbon sequestration rights or options will reduce the business risks associated with changes in the future price of sequestered carbon or emissions reduction requirements.
Therefore investing in carbon sequestration can help maintain their commercial performance. The investments have sometimes also been viewed as demonstrating a company's commitment to good corporate citizenship.
Carbon pooling can provide cheaper and more effective carbon sequestration performance. Because aspects of carbon sequestration and markets are subject to significant economies of scale, carbon pooling offers a range of potential benefits to participants. These include:
Yet there are many challenges and areas of uncertainty for those interested in participating in this emerging market. One of these is a lack of understanding of the different options for participating in pooling, and the different investment vehicles that could be used (each with benefits and drawbacks).
When an organisation decides that it wishes to establish a carbon pool (or to participate in one), the next step is to consider the best legal and administrative framework to manage the functions of the pool. This framework is generally called the investment vehicle. The choice of vehicle will be influenced by an organisation's legal, organisational, and taxation characteristics.
To help organisations identify which type of pool or investment vehicle is likely to be best suited to their needs, the major forms of investment vehicles that could be used for carbon pooling (i.e. partnerships, joint ventures and unit trusts) have been assessed against five criteria:
Carbon pools have the potential to provide and manage multiple benefit streams, involving carbon and the provision of one or more other environmental service.
However, in the short term it is unlikely that ecosystem services will generally be specified in the same manner as carbon, which has homogenous units of output (i.e. tonnes of carbon dioxide equivalent) and for which detailed accounting methods have been developed. Rather, payments and the definition of benefits will likely be formulated in terms of the core parameters governing land management agreements. These might, for example, specify that the planting be located in certain ways (in relation to existing remnant vegetation, or to achieve specified salinity mitigation outcomes).
To supply and market these multiple benefit streams the carbon pool manager could divide the overall pool of sequestered carbon into a number of sub-pools with defined characteristics for example, establishing different sub-pools for plantings that meet habitat or biodiversity planting criteria (as well as carbon sequestration requirements).
Different sub-pools or 'vegetation portfolios' would provide different flows of benefits, reflecting the synergies and trade-offs between achieving a combination of environmental outcomes. To achieve salinity mitigation, for example, a planting might be sited in such a way as to reduce sequestration outcomes somewhat.
