Science, Transaction Costs and Carbon Markets

A price on carbon and the related offset scheme have been created as a first step in transforming Australia towards a low-carbon economy. Whether and to what extent it transforms the agricultural sector into a new era of low-carbon agricultural productivity is an emerging question. Several factors are working against the early adoption of low-carbon technologies and practices by farmers and other land managers. Participation in the Carbon Farming Initiative (CFI) is voluntary, and the transaction costs associated with developing and implementing offset methodologies in many cases are high. In addition the projected prices paid for abated carbon over the short to medium term are relatively low. Consequently, strategic policy has focused on creating incentives to adopt low-carbon technologies. Policies have focused on reducing transaction costs associated with participating in carbon markets and demonstrating the co-benefits from investing in carbon offsets by identifying increases in agricultural productivity and on-farm profitability.

This chapter briefly summarizes the emerging contributions that science is making to help reduce the cost to farmers and other land managers from participating in the carbon market. It briefly reviews the sources of transactions costs, and identifies the different streams of research and development working towards reducing these costs.