Global warming is indeed an issue that affects everyone. Cutting greenhouse gases by using green technology can come with major cash incentives for many organisations.
Similarly, balancing others’ carbon emissions can offer some businesses significant financial rewards. For example, the Carbon Farming Initiative gives landowners the option to use portions of their property for the planting of new trees.
As these recycle carbon dioxide and put oxygen back into the atmosphere, a property owner accumulates tax credits for every tree on their land.
The aim is to reduce carbon emissions in Australia by 5 per cent by the year 2020 from 2000 levels. The 2011 initiative was also amended in November 2014 to include non-land-based farms, meaning more businesses can benefit from the scheme.
A growing initiative
Insurance provider Vero has been quick to get on board with the project, and says the market could be worth around $500 million by 2020.
Adam Davies, leader of pricing and portfolio at Vero, described the return on investment potential for allocating spare land for forest plantation.
“With the Carbon Farming Initiative approved, there are a lot of investors wanting to put their dollars into plantations. As we get further down the path of global warming and pressure increases on big companies, the investment in carbon forests is only going to increase,” he explained in a report by Insurance & Risk Professional.
However, while the financial benefits are clear, there are also risks that could seriously affect a landowner’s welfare – and that can be protected with adequate farm insurance.
Farmers insurance protecting green initiatives
As each tree ages, it will sequester a significant amount of greenhouse gas. The amount of carbon absorbed, stored and recycled by the tree is measured and allocated a subsequent amount in tax credits, which companies can then purchase from the landowner to offset their own emissions.
If large portions of this farm land is allocated to such plantations, there is a real opportunity for farmers to earn long-term financial rewards, particularly given the life span of most tree species.
Nevertheless, if a tree is to fall or die, it is no longer able to meet its greenhouse gas reduction target. What’s more, any stored carbon will be released back into the atmosphere. A landowner will then be liable to repay the amount that has been paid for it.
This can prove devastating for a farming business, especially considering the constant threats they face in the Australian landscape. Bushfires are common around the country, as are other natural dangers such as flooding and storms.
If a fire was to spread through the planted forest, a landowner will be dealt a double blow of seeing years, even decades, of hard work go up in smoke and finding themselves responsible for refunding tax credits – this on top of the cost of rebuilding their business.
This can be insured against, however, and a farmer’s return on investment protected. Carbon sink insurance is a specialist product provided by some insurers to cover the losses of those taking part in the Carbon Farming Initiative.
Mitigating the risks with your broker
“Once the trees start to mature and sequester carbon in about two to three years, the demand for carbon sink insurance is going to increase,” Mr Davies explained.
As bushfire season approaches and with most of the country at near-constant risk, it is something for many landowners to think about.
If you are looking to review your business insurance and want to create a package that protects your entire company, your insurance broker will be able to guide you to a competitive deal.
For industry- and location-specific farmer’s insurance, contact one of MGA’s regional offices and speak to a specialist today.