What carbon credit returns can you expect from native silvopastoral systems?
Blog post.
Tom Mackay-Smith and Raphael Spiekermann
11/25/20242 min read
We calculated the expected returns you can expect from carbon credits through the Emissions Trading Scheme (ETS). Agricultural economist Phil Journeux helped us with the analysis.
Here are the results for planting 9 hectares at two densities over a 30-year period:
65 stems/ha
Including the cost of planting and ETS registration, at 65 stems/ha you can expect an annuity* of $167/ha, with an internal rate of return of 15%.
*An annuity is the amount of money you can expect to receive each year from the silvopastoral investment if the returns were spread out evenly over the planting’s lifetime.
If you include a government erosion control subsidy of 50%, you can expect an annuity of $189/ha, with an internal rate of return of 21%.
40 stems/ha
Including the cost of planting and ETS registration, at 40 stems/ha you can expect an annuity of $80/ha, with an internal rate of return of 14%.
Assumptions for the analysis
The cost of planting was $40/tree, including planting and protection.
A carbon registration fee of $3/tree.
This is the first block to be registered for this title.
A discount rate of 5%.
A carbon price of $85 from 2024-2028, $100 from 2029-2033, $120 from 2034-2038, $150 from 2039-2044 and $200 from 2044-2053 (this roughly equates to a 5% increase each year).
The 65 stems/ha scenario used the carbon stock increases for the indigenous category in the ETS look up table. The carbon stock increase for 40 stems/ha was 1.8 times less than for 65 stems/ha.
Summary
These results are very interesting.
If carbon prices rise as predicted (about 5% yearly), our analysis shows that planting native silvopastoral systems could earn returns of 14-21% under current ETS rules.
That's 3 - 4 times better than just buying carbon credits on the spot market.
So, if you believe carbon prices will go up, planting native silvopastoral systems could be a smart long-term strategy to get exposure to the carbon market whilst getting all the good stuff you get from planting trees.
