Senator JOYCE—When you are selecting areas in which to plant the trees, what is the process of examination that you go through?

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Mr Grant—There are two aspects of the business. One is where we are partnering with landholders. So, firstly, the landholder has to want us to partner with them and have the trees located on their property.

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Senator JOYCE—So it is a joint partnership?

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Mr Grant—It is an expression of interest. They put forward their properties. If they have the right physical criteria—rainfall, soil type, region—typically the farmer wants to offer up an area of their property that is degraded or uneconomic, and we examine that in terms of its viability.

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Senator JOYCE—Can you do anything with that?

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Mr Grant—Yes.

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Senator JOYCE—If they say, ‘I have got this ridge up here’—

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Mr Grant—A ridge is generally no good but often there are paddocks that are poor quality for cereal cropping but are ideal for biomass accumulation. We are growing native New South Wales mallees in the region, so they are well suited; they have evolved in that landscape.

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Senator JOYCE—You have just said that there are certain areas where they cannot crop and you say, ‘We can’t crop there; it’s unviable for cropping but it’s good for biomass.’

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Mr Grant—Yes.

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Senator JOYCE—Is that easy to identify? I am not setting you up; I really am inquiring.

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Mr Grant—I know that in Victoria, for example, the natural resource management agencies have identified a minimum of one million hectares of land that is currently under production that is unviable.

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Senator JOYCE—That is very interesting. When you go to Google Earth or something like that—because we can certainly get an idea of vegetation from satellite imagery—can you say: ‘I can tell you roughly from Google Earth that that is where you would probably be growing your crops. I can see you’ve got some moulding chocolatey soils there and I notice here you’ve got more of a sandy, lighter soil, but we could do something with that bit of country. We could do something with that over there as well, being the better soil, but we could certainly do something with this. You might want to keep that for your wheat crop’? Do you do that?

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Mr Grant—Yes.

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Senator JOYCE—Can you use satellite imagery and other stuff?

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Mr Grant—Yes, the data varies across the country. We have looked at the scale of what we could bring to the market in this area. There has been a lot of work done by, again, the CSIRO on suitability for biosequestration and what regions would be optimum.

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Senator JOYCE—Even if it is not so much identifying what you can use, you could certainly identify what is prime country and say: ‘Bingo; that’s flat. I can see the topography and I can see the soil type. I know from the Bureau of Meteorology what the weather is like there. Here is the likely area I would be interested in.’

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Mr Grant—I think we have the shifting sands there—in the area on which we have concentrated in New South Wales, which was marginal cropping country. In the last 10 years they have had seven drought years and they have had no economic return from that land. The criteria by which you assess the viability of that land are changing. I think there is some pretty aggressive thinking going on by landholders about how they can shore up their income streams. In our business they get long-term payments from the trees on their property. So they are looking to hedge their income streams to handle that.

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Senator JOYCE—I do have a place, and I do have marginal country on it, and so does my family. So I could basically come to you and say, ‘I’ve got this marginal country here—it is marginal for me; it might not be marginal for you—but I know it will certainly grow timber.’ So you, in partnership with me while I still have title to the land, would then work out the creation of that. Is your business going well?

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Mr Grant—That was a question earlier. I think we are a good case study. This is our fifth year of operation. Last financial year was the first year that we had been profitable. We have invested about $16 million of shareholders’ funds to get to this point. It is not for the faint-hearted. You have to take a long-term view. You have to make a massive investment. And we are pioneers.

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Senator JOYCE—With my next question, I will let you know that I am getting back on to being a bit more inquisitorial. You would see this legislation coming up and say, ‘Well, I’ve been doing this for five years; I’ve got $15 million of my own people’s funds invested in it; now they are going to go out and give someone an upfront tax deduction for doing what we have already been doing. If they had just left things alone, our business plan could have grown quite ably without this.’

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Mr Grant—No—in fact, the opposite. Our clients went and sought private rulings from the tax office, and not only was it as bad that there was no deduction, but the tax office formed the view that the molecule of CO2 emitted by the client could not be shown to be the same molecule of CO2 sequestered by the tree and, therefore, no tax linkage could be formed. Honestly, it is as bad as that. Yet, if you geologically sequester CO2, you have no requirement to make the spatial connection. So the reality is: no-one ever anticipated biological sequestration being a business activity under the tax act. These were unforeseen consequences. And I think the amendments that have been proposed, whilst they are perceived as being tax-driven, are really just tax equalisation in my view.

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Senator JOYCE—So if I were to say to you, ‘Okay: with the knowledge you have, Mr Grant, I am going to give you 100,000 acres of land anywhere in Australia; what I am going to ask you to do, though, is to capture the largest amount of carbon as quickly as possible through growing timber.’ Where are you going to go? And do not say, ‘I am going to go everywhere.’

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Mr Grant—The drivers are land price, rainfall, soil type, soil depth, carbon price—you need to marry all those together.

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Senator JOYCE—So let us go through them one by one. Land type: are you looking for basaltic soils—premium?

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Mr Grant—No.

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Senator JOYCE—What are you looking for?

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Mr Grant—In our case, mallees are suited best to where they were grown previously. Australia had the largest inland mallee forests in the world, which were cleared. We know it grows well where it grew previously.

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Senator JOYCE—So what is the soil depth you are looking for?

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Mr Grant—The deeper the soil the more productive the tree growth is. Soil depth is uncorrelated to cropping practice. And the higher the rainfall, the more yield you get.

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Senator JOYCE—So higher rainfall and deeper soil. What type of tree creates the greatest weight of carbon that you can therefore offer as a product? Let us pretend I have free land everywhere. I just want you to get me an income stream from carbon.