Woolmark+ Australian Wool Insetting Program

Insetting refers to initiatives that occur within a company’s value chain to reduce the environmental footprint of the products that company produces. Wool-buying brands are interested in ways to reduce the on-farm emissions of wool, as these emissions impact the overall impact of their end product, such as a wool garment from an apparel brand. Insetting is a way to keep the emissions reductions and removals within the wool value chain, as opposed to offsetting where the emissions reductions and removals are sold outside of the wool value chain. While primarily used to reduce emissions, insetting can also be a mechanism to help brands reduce their broader impact on nature.

A business has three types, or ‘scopes’, of emissions.

1. Scope 1 emissions are all the emissions associated with the company’s direct operations, such as emissions from using a tractor on farm or methane from sheep.
2. Scope 2 are emissions associated with what you purchase to run your farm, such as electricity and fuel.
3. Scope 3 emissions are outside of a company’s direct operations, such as the emissions associated with the production of the fertiliser you buy.

For a wool-buying brand, the emissions associated with producing the wool fibre on farm are their scope 3 emissions. Therefore, a woolgrower’s scope 1 and 2 emissions (the direct emissions of the farm business) are a wool-buying brand’s scope 3 emissions.

Brands are focused on their scope 3 emissions because they account for around 95% of their business’ impact.

What are the specific goals and anticipated outcomes of the program?

The goal of the Woolmark+ Australian Wool Insetting Program is to generate environmental and emissions reduction benefits by developing an insetting framework in the wool industry. The program will trial and establish an approach to facilitate GHG emission reductions and removal activities on Australian wool-growing properties through collaboration and investment from global wool-buying brands. This will include the approach to implement, report, and administer finances to scale insetting within the Australian wool sector over time.

How will this program contribute to the reduction of on-farm emissions?

The program focuses on exploring various activities that will reduce and/or remove GHG emissions on farm. Advisors and implementation partners will provide expertise and support to enable woolgrowers to implement and manage initiatives.

What is the role of supply chain partners such as early-stage processors, yarn and fabric manufacturers?

The role of supply chain partners in the manufacturing stages of wool have the opportunity to invest in emissions reductions within their value chain and then on-sell low-emissions wool to their customers. However, if a brand’s manufacturing partners are not involved in the program, that does not affect the opportunity of the brand to secure emissions reductions and removals.

What activities on farm are generating the emissions reductions and removals?

Activities that will generate the emissions reductions and removals will include:

• Productivity gains and efficiencies e.g. improving flock productivity, and renewable energy.
• Carbon sequestration through environmental plantings of native trees and shrubs as shelter belts, block planting, riparian zones, biodiversity corridors and erosion repair.
• Carbon sequestration through soil organic carbon including activities such as practice change in herd management to increase ground cover and vegetation biomass, sowing legume species, using cover crops to increase soil health, applying biochar, lime or gypsum to remediate soil.
• Methane inhibiting feed additives.

How are these activities chosen, and are they based on proven methods or new technologies?

The above activities have been chosen to be included in the program based on the below criteria:

• Potential emissions reductions and removals
• Implementation feasibility and commerciality
• Ability for high-integrity monitoring, reporting and verification
• Suitability for wool-growing businesses and environments

Will an environmental planting corridor that is being planted this year be eligible to be included?

Yes, it would be possible to include environmental plantings that are planted this year in the program if they meet the eligibility requirements for accounting for sequestration from trees and shrubs on farm. Noting that for an ACCU project, there are strict additionality requirements and any implementation activities must start after the project baseline and project registration is complete. Once the woolgrowers are confirmed, we will seek to baselining farms from May-October 2025. All activities after baselining will be incorporated into the program.

Do NSW biodiversity sites count towards carbon insetting?

There are a number of brands that are interested in the biodiversity benefits that are being measured and delivered on wool-growing properties. Part of the program will explore existing methods, certifications and schemes that can maximise the value that can be obtained by woolgrowers for the biodiversity benefits they can and are delivering. Insetting requires that the benefit (whether that be carbon, biodiversity or other benefits), be associated with the commodity, in this case wool. Therefore, if the biodiversity credit has been produced on the land that also produces wool, yes, the biodiversity credit could be used in an insetting approach. If the biodiversity credit is produced on land that is not associated with the production of wool, a brand may invest or procure that biodiversity benefit however, it would not be considered insetting, it would be considered a 'beyond value chain' intervention.

Is grazing management with biodiversity, ground cover, and increasing soil carbon outcomes, going to be a part of this project?

Yes. Improved management of natural capital, resulting in greater soil carbon and biodiversity/ecosystem benefits will be included in the program. Brands are interested in sourcing wool from woolgrowers practicing regenerative agriculture and they are interested to understand what outcomes these practices deliver.

Will First Nations perspectives and practices be integrated into the program’s design and implementation?

The program will work with First Nations organisations to explore potential opportunities for First Nations to be engaged in the program where appropriate. The program will collaborate with First Nations organisations to develop co-design principles to ensure respectful engagement.

What is the expected financial commitment from each brand / supply chain partner over the 3-year period?

To fund implementation activities, Tier 2 and Tier 3 participating brands will be requested to provide financial contributions to implement GHG emissions reduction and removal activities on farm.

In addition to emissions reductions and removals, participating brands will have access to the IP generated through the program including the accounting and reporting protocols, methodology and measurement, reporting and verification (MRV) approach, financial approach, guidance on alignment with GHG Protocol, SBTi target and reporting requirements under TCFD, ISSB disclosure requirements, TNFD reporting.

Cost of participation and investment in emissions reductions and removals will be confirmed in the coming months and shared with prospective brand partners.

What is the cost per tCO2e of reductions or removals?

The cost per tCO2e will vary due to the activity and farming system. This program will determine the appropriate cost per tCO2e/emissions intensity reduction that off takers within an insetting arrangement should pay for GHG reductions and removals delivered by wool-growing farms to the wool value chain. Further information will be shared with prospective participants in the coming months.

What price discovery method would likely be used? Within beef a doubling of price is required to justify insetting.

We are exploring multiple models to ensure a fair price to woolgrowers. We are looking to separate the cost of the reductions and removals from the price of the commodity to enable flexibility for procurement and to ensure woolgrowers continue to be fairly remunerated for their environmental practices.

In the event of successful participation, what is the premium in wool $/Kg at market?

The financial incentive may be attached to the wool or it may be a provided via a separate contract specific to the tCO2e reductions/removals achieved. We are modelling the costs of implementation at the price/tCO2e that we will expect brands to pay. We will be able to provide greater clarity on this price in the coming months.

What is the scale of emissions reductions and removals?

The scale of emissions reductions and removals will vary depending on the activity and will be determined in the first 6 months of the program when the potential reductions and removals for each participating farm will be modelled. The program is aiming to evidence that insetting can deliver material emissions intensity reductions for the wool procured by the participating brands. These foundations will lead to scaling insetting across the brand’s wool procurement portfolio.

Are brands expected to contribute annually or is this a one-off payment?

Investment is structured on an annual basis for tier 2 and tier 3 participation. Contribution and investment terms will be confirmed for each tier to determine contribution and scale of impact. Depending on the activity and the accounting of the emissions reductions/removals, upfront payment for activities or a prepayment arrangement will be negotiated. The purpose of this pilot is to explore the most effective financial mechanism to enable the greatest scale. Brands are welcome to increase scale of investment in years 2 and 3.

Is the purpose of the program to facilitate funding from brands to assist Australian woolgrowers?

Yes. The purpose of the pilot is to trial and develop an investing process in which brands and supply chain partners provide upfront capital to support woolgrowers to implement practices and initiatives that lower their emissions footprint.

If the woolgrower implements an ACCU project, how will the exchange of ACCUs occur at the sale point?

The program will work with the woolgrower, project proponent, brand and accounting partner to work through the ACCU process and accounting for the tCO2e by the off-taker (brand/supply chain partner) through the supply chain.

What is the length of contract?

The program is to be executed across a 36-month period, with a contract period of 36 months. Longer contractual period may be explored at the conclusions of the pilot.

What are the responsibilities of the woolgrower in participating in the pilot project?

The responsibility of the woolgrower throughout the pilot includes:

• Providing your time and expertise to work through the pilot processes
• Collaborating with implementation partners and monitoring, reporting and verification partners to gather accurate information and data about your business' emissions and carbon sequestration
• Depending on the context, co-invest in implementation costs, labour and ongoing management where required (further information will be provided before any commitments are made)
• Woolgrowers will be advised to engage external legal advice and farm advisors when making business decisions

Will the program take an inventory approach or a unitisation approach?

The program will explore both an inventory approach and a unitisation approach to accounting for emissions reductions and removals on farm. For example, a revised emissions factor is reported to enable inventory accounting, or a credit or impact unit is generated through project-based crediting.

Will the emission reductions be attached to the wool?

The program will explore both a segregated approach where emission reductions are attached to the wool, and a sourcing region approach where the emission reductions and wool are sourced from the same sourcing region but are not attached to the wool. 

What is the organisation issuing the emission reductions?

We are currently engaging with organisations that could issue the emissions reductions/removals to the supply chain. The emissions reductions and removals will be verified by a third-party.

Which parties along the supply chain get to claim the emission reductions

The parties that are involved in the program will be able to claim the reductions/removals. The benefit of insetting is that both the woolgrower and the supply chain partners can co-claim the emissions reductions/removals. This is because a woolgrowers scope 1 emissions are the same shared emissions as a supply chain partner and brand's scope 3 emissions.

Are there geographical restrictions on the sourcing region?

Yes, the program is restricted to Australia only. The program will also determine whether the sourcing region can be Australia-wide or whether the sourcing region is defined at a sub-national scale. Insetting requires that the emission reductions are tied to the relevant sourcing region, so emission reductions achieved in Australia could not be applied to wool from another country. 

Can you elaborate on how carbon sequestration from existing vegetation is accepted within an insetting approach?

The global guidance that includes removals from existing vegetation is the SBTi Forestry, Land, and Agriculture Guidance (FLAG), the GHG Protocol Land Sector and Removals Guidance and the ISO 14067 Greenhouse gases — Carbon footprint of products — Requirements and guidelines for quantification.

The SBTi FLAG enables accounting for carbon removals on land owned, operated, or within a company's supply chain to be included in FLAG pathways and count toward achieving a FLAG target. Therefore, existing vegetation on farm that is sequestering carbon can be considered.

The GHG Protocol Land Sector and Removals Guidance provides the specific guidance on how to account for carbon removals from existing vegetation which includes guidance for ongoing storage monitoring, traceability, primary data, uncertainty, and reversal accounting.

The ISO 14067 allows for carbon removals from existing vegetation to be included in the carbon footprint of the product if that vegetation is part of the product system i.e. if the existing vegetation is part of the farm that produces the product in question.

This guidance is different to the guidance for carbon credits generated for the offsetting market, where 'additionality' is a core principle that needs to be met and therefore, only carbon sequestration from vegetation that was planted after the project is registered under the ACCU scheme or other voluntary carbon market standard, is allowed.

Is methane production a big part of the higher carbon footprint?

Yes. Methane contributes the majority (approximately 75-86%) of the emissions profile of greasy wool at farm gate.

Are you able to provide a % breakdown of the sources of emissions on farm?

The breakdown of emissions for wool are based on lifecycle assessments, which provide information on specific farms within the study. Therefore, emissions sources vary based on the specific characteristics of different businesses and environments and the calculation methods used. A 2016 review of lifecycle assessments in Australia¹ found that the breakdown of emissions for Australian wool ranged from:

Enteric methane: 79-86%. Primarily from enteric fermentation in sheep's digestive systems.

Nitrous oxide: 10-11%. Direct and indirect emissions from animal waste and decomposition of pasture residue.

Carbon dioxide: 3-9%. Embodied farm inputs, fuel and energy use.

Will the program work on studying the emission intensity of wool in different regions throughout Australia?

Yes, the program is seeking farms from a diversity of regions and through this program, the emissions intensity of these farm businesses will be explored.

Are you counting the meat products from the farms involved in the program?

This program focuses on securing demand and co-investment from wool buyers for emission reductions associated with the wool produced on the participating farms.  As emission reduction practices adopted on farm will also reduce the allocation of emissions for the meat produced on the farms, there are opportunities for producers to promote this to their meat buyers as well.

Are the brands interested in absolute emissions reductions on farm or interested in reductions in emissions intensity per kg of wool/meat produced?

We are exploring both options, as some brands have absolute emission reduction commitments for scope 3 and others have intensity based commitments.

Are the brands also purchasing offsets to meet their obligations?

The brands we are looking to engage in this program are focused on reducing emissions in their value chain through an insetting approach rather than offsetting.

With insetting would there be an obligation for the grower to exclusively supply a specific brand?

Under the insetting program we will be developing a sourcing region approach which means that growers will not need to exclusively supply specific brands. This ensures brands can source wool according to their requirements, and can use emission reductions within the sourcing region as per the insetting guidance.

If I have an existing carbon project on my property and would like to sell ACCUs solely within the value supply chain, would this qualify as insetting rather than offsetting?

Yes. If you produce wool and carbon credits through the ACCU scheme, we will explore the ability to use the credits for insetting as part of this program, as long as these credits have not yet been sold.

What happens when emissions have been reduced as far as possible and the maximum amount of carbon has been sequestered without compromising wool production? Is this a risk if markets posture to absolute zero, or even negative emissions scenarios?

If a farm has captured all opportunities to reduce emissions and sequester carbon that are feasible within their commercial operations, this will deliver a low carbon wool which will still be highly valuable to brands and can support their targets. As part of this program, we will provide guidance on how this can be maximally commercialised. Novel solutions, where significant R&D investment is focused within the broader agriculture sector, will provide new opportunities to further reduce emissions.

How will the activities on farm be monitored and verified?

The monitoring, reporting and verification of emissions reductions/removals on farm will follow the methods and standards approved under the Australian Government Greenhouse Gas Accounting Framework, Australian Carbon Credit Unit scheme and the Voluntary Carbon Market.

An independent third-party verifier will monitor and report the emissions reductions and removals achieved on farm annually.

How often will a farm be assessed?

Each farm will be assessed on an annual basis for the 3-year program and report emission reductions annually.

Can we incorporate biodiversity metrics?

The program will implement nature-based solutions which generate nature co-benefits. There is scope to include nature and biodiversity metrics within the insetting pilot to enable brands to demonstrate nature impact through participation in the program and support progress on Taskforce on Nature-related Financial Disclosures (TNFD) recommended disclosures and targets. This will be determined with participating brands at the onset of the program.

What contribution can the planting of legume-based pastures be? Is this related to weight gains or soil health?

Some legume species can provide a number of benefits to increase the amount of carbon sequestered in soils. The program will consider the ability to claim the sequestration and considerations around this.

Would the 50ha minimum planting apply for non-ACCU insetting projects?

No. We are looking to include non-ACCU generating environmental plantings within the program as well and these plantings do not have to be a minimum of 50 hectares. However, these plantings will have to have the characteristics that qualify as environmental plantings under the ACCU scheme to ensure that we can account for the carbon sequestration.

What happens if the woolgrowers can’t deliver the projected emissions reductions?

The purpose of this pilot is to develop an insetting framework for emission reduction and removal activities undertaken on wool-growing properties. Like all nature-based projects, the actual emissions reductions and removals may vary from the modelled potentials depending on a range of factors. While the practices undertaken on the farms are known to reduce and remove emissions, there may be variance in the emission reductions delivered to the participating brand and supply chain partners in any one year. The program funds will still be utilised to implement, monitor and report emissions annually throughout the program.

What happens after the 3-year program pilot concludes?

The program is being designed to set the foundations for a long-term insetting market in Australia. At the culmination of the pilot program, brands will have the opportunity to continue to procure emissions reductions and removals from the sourcing region within the pilot and beyond.

Following the 3-year program, all materials will be published to enable all wool buying brands to utilise the framework and guidance to implement insetting projects within their supply chains.

How will ongoing maintenance and monitoring be handled after the program pilot period?

Brands and woolgrowers, as well as intermediaries will have the opportunity to maintain the management and monitoring of the projects to continue to deliver emissions reductions and removals.

What costs are associated with the assessment of the farm?

The costs associated with the assessment of the farm will depend on the activities undertaken. We are currently modelling these costs per activity. When the woolgrowers are onboarded to the program, we will be able to provide specific costs associated with monitoring and reporting. The aim of this program is to be scalable and commercially practical, therefore we are focused on cost efficient monitoring and reporting with high integrity. 

How does this program align with current or anticipated climate disclosure and reporting requirements?

The program will develop the required accounting, MRV, financial and reporting approaches to align with requirements under the GHG Protocol, SBTi and ISSB disclosure standards which inform TCFD.

Is the program aligned with internationally recognised standards or frameworks for carbon insetting?

Insetting is an emerging practice and does not yet have a globally recognised standard or framework. The program will align with the GHG Protocol draft Land Sector and Removals Guidance, as well as globally accepted standards and reporting frameworks including SBTi and voluntary carbon market methodologies.

How do I determine if I’m eligible to participate in the Insetting program as a woolgrower?

An Expression of Interest form has been created that outlines the activities that the program is looking to trial and support and the requirements of a woolgrower to determine eligibility to be part of this program. The main eligibility requirements are:

• You are a primary producer with a registered ABN and consider yourself primarily a woolgrower.
• Your business meets the definition of a ‘wholesale’ client under the Corporations Act:

The specific attributes of a ‘wholesale’ client include:

1. 1. have net assets of at least $2.5 million; OR
   2. have had a gross income for each of the past two financial years of at least $250,000

• You must be primarily a commercial woolgrower. The size of your wool clip in general is not a criteria, however, the size of your wool clip in comparison to your other commodities is important. This project is specifically aimed at trialling insetting in the wool industry and therefore the program will prioritise producers who are primarily woolgrowers.
• You are willing and able to join a 3-year project
• You are interested and able to implement activities including:

1. 1. Productivity improvements e.g. reducing the age of first joining and transitioning to renewable energy
   2. Measuring carbon sequestration within existing vegetation
   3. New environmental plantings or soil carbon projects
   4. Using your existing carbon credit project for insetting purposes
   5. Trailing methane inhibiting feed supplements

You can find the EOI form here.

What are the benefits for landholders in participating in the program?

• Technical support to understand your businesses’ emissions and ways in which you can reduce those emissions
• Technical support to implement practices on farm, whether that be tree planting, productivity gains etc
• Potential upfront capital to invest in emissions reductions/removal activities
• Potential for income diversification or premiumisation of your wool product.
• What is the commercial incentive for participating in the program?

The commercial incentive for woolgrowers to join the pilot program include:

• Opportunity to build relationships with brands and supply chain partners, develop understanding of market dynamics through the supply chain and the current and future sourcing requirements for wool buyers around the world
• Gain technical advice and support to better understand emissions on farm and how you can address these emissions within your business
• Potential to attract co-investment and/or upfront payment for emissions reductions and removal activities

What is the minimum size requirement for an activity, farm, or wool clip to be considered for the insetting program?

1. The minimum size requirement for a woolgrower to be included in the pilot is based on:Does your business meet the definition of a ‘wholesale’ client under the Corporations Act? The specific attributes of a ‘wholesale’ client include:

1. 1. have net assets of at least $2.5 million; OR
   2. have had a gross income for each of the past two financial years of at least $250,000.

This is a legal requirement to enable woolgrowers to receive advice from implementing partners that have an Australian Financial Services License.

2. You must be primarily a commercial woolgrower. The size of your wool clip in general is not a criteria, however, the size of your wool clip in comparison to your other commodities is important. This project is specifically aimed at trialling insetting in the wool industry and therefore the program will prioritise producers who are primarily woolgrowers.
3. For environmental plantings, to ensure the activity is commercially viable, a minimum of 50 hectares is required.

What are the costs for the landholder associated with undertaking emissions reductions and removals activities?

Costs will include:

• Time commitment to be involved in the 3-year program
• Labour costs associated with business practice changes e.g. joining ewes earlier
• Potential co-investment in activities that have long term benefits such as environmental planting projects

We are currently modelling the costs for implementation of activities to understand the overall costs and we are then looking at how brands can co-invest in these costs.

Will emissions reductions and removals activities negatively impact my production?

The purpose of all proposed activities within this pilot is to support your business’s production of wool. Some of the activities are intended to positively impact your production—for example, shelter belts can increase wool production by more than 30% and weight gain in livestock by more than 20%².

Will technical and implementation support be available throughout the project?

Yes. The project will have technical implementation partners supporting participating woolgrowers. Landcare Australia is the implementation partner for environmental planting activities and further implementation partners will be engaged who are locally relevant to the participating woolgrowers.

Can I produce carbon-neutral wool through insetting?

There is potential to produce carbon-neutral wool through insetting, by ways of reducing emissions and accounting for the carbon sequestration within your farm boundary. However, each farm business is different and therefore, your specific emissions profile and ability to reduce and remove emissions are important factors to consider.

How will appropriate activities be selected for my production system (e.g., Rangelands vs. High Rainfall)?

Implementation partners will work with you to determine what activities are most suited to your environment and business structure to select and design activities that are most appropriate for your production system.

What are the commitment periods and contractual obligations for participating in an insetting project?

The pilot program is a 3-year program. We will ask all participating woolgrowers to commit to be involved for the 3-years. If ACCU-generating projects are undertaken, there is a minimum commitment period of 25-years to ensure permanence of carbon sequestration.

What at are the administrative and reporting obligations for woolgrowers participating in the insetting program?

The pilot program aims to have minimal administrative burden on woolgrowers. However, the program will require woolgrowers, and/or their farm advisor or accountant, to support the implementation partners in conducting both a desktop and on the ground assessment of your current emissions and carbon sequestration. On ground monitoring and reporting will be conducted annually by a third-party for the duration of the 3-year program.

What happens if the activities undertaken fail to achieve the expected reductions and removals, or if unforeseen circumstances (e.g., drought, flood, fire) prevent me from delivering the activities? Who bears the associated costs and risks?

You will enter into a contractual agreement for the duration of the 3-year project. The commitment relates to implementing and maintaining the activities, for example tree planting, and there is no penalty or cost for unforeseen circumstances or where emissions reductions are less than forecasted.