Economy and ecology of emerging markets and credits for bio-sequestered carbon on private land in tropical Australia

A central question addressed is whether emerging carbon markets have the potential to provide an economic incentive for private landholders to reforest without recourse to subsidy. A second question is whether bio-sequestration in the Wet Tropics of Queensland is cost-competitive with southern Australia. A third, given that plantations of monocultures also provide carbon sinks, is: are the goals of carbon sequestration and biodiversity mutually exclusive or complementary? Australia intends to meet its Kyoto greenhouse gas emissions target even though it has not ratified the Protocol. While a national system of carbon emission cap and trade does not exist, unilateral action by some states to mandate industry caps has generated a demand for offsets. However, it is the voluntary market for offsets, stimulated by demand by companies and government departments that is most active. The favourable climate and soils of the Wet Tropics Region of north Queensland have enabled the evolution of unique ecosystems. Deforestation of these has been greatly reduced by World Heritage listing of the Wet Tropics. Nevertheless much of the landscape remains fragmented. An official priority is the encouragement of rainforest plantations on private land with the aim of augmenting endangered ecosystems and the habitat of iconic species, but reforestation is heavily subsidised by the Australian government. Using methodology that allows the comparison of uneven streams of costs and benefits, it is found that - at present prices - payments for sequestered carbon defray only a small proportion of costs, providing a level of incentive insufficient to stimulate restoration. Comparative analysis shows that monocultures sequester carbon at a much lower price per tonne. However, despite the relatively high growth rates of monocultures in the region, their cost per tonne of carbon are greater than costs in southern Australia. A decreasing supply of suitable land for bio-sequestration offsets in southern Australia may well force brokers to look to the Wet Tropics. In this event - the economic analysis suggests - land in areas that carried endangered or threatened ecosystems will be devoted to monocultures rather than restored rainforest. The paper highlights the asymmetry between the availability of credits for carbon and of credits for biodiversity and the need for public investment in conservation and restoration. Requiring further investigation is the potential demand for carbon offsets with high biodiversity benefits - so called "boutique abatements" - that could readily be supplied in the Queensland Wet Tropics.