The 2026 Australian Cotton Conference brought growers, researchers, advisers and industry participants together to discuss the future of cotton production. It explored issues including how the industry can respond to changing expectations around sustainability, soils, water, productivity, traceability, markets and innovation.
Our economist, Hugh McCormack, contributed to the conference with his presentation, Can Lower Emission Cotton Pay? A Monte Carlo Approach to Farm Level Economics and joined a broader panel discussion on carbon, soil health, efficiency and farm management called The Carbon Conversation.
Together, Hugh’s presentation and panel addressed a practical question for cotton growers and the broader supply chain:
How should the cotton industry think about carbon, and what does reducing emissions mean for farm economics?
The key message from the presentation and The Carbon Conversation was that lower-emission cotton needs to be understood as both an emissions and farm economics issue. Enhanced efficiency fertiliser and reduced nitrogen use can materially lower emissions, but the financial case depends on carbon prices, input savings, yield effects, market premiums and farm-specific conditions.
Watch the videos and learn more, below.
Putting a price on lower-emission cotton
Hugh’s presentation was based on his recent Bachelor of Agriculture and Resource Economics degree First Class Honours thesis, currently under review for publication. The analysis focuses on synthetic fertiliser use in irrigated cotton production. Nitrogen fertiliser accounts for 64% of the carbon footprint of a bale of cotton, largely through nitrous oxide emissions produced through nitrification or denitrification. Nitrous oxide has a global warming potential 273 times that of carbon dioxide. The use of synthetic fertilisers is crucial to a farms profitability and is therefore one of the most important inputs growers can control.
Watch the presentation below.
Modelling the fertiliser system
The modelling compared a conventional irrigated cotton production system with an alternative system using enhanced efficiency fertiliser (EEFs). EEFs are premium fertiliser products designed to improve nitrogen use efficiency by slowing nitrogen transformations in the soil. This can reduce nitrogen losses to the environment while maintaining crop production.
There are two main types of EEFs: Urease and Nitrification inhibitors. Hugh’s model assumed the adoption of a Nitrification inhibitor which slow the activity of soil bacteria that convert ammonium (NH₄⁺) into nitrate (NO₃⁻). This can reduce nitrogen losses through nitrate leaching and denitrification, leading to lower nitrous oxide (N₂O) emissions and retaining more nitrogen in forms available for plant uptake.
These fertilisers cost more than conventional fertilisers, so it is important to consider these costs when seeking better environmental outcomes. More specifically, whether there are net economic benefits depends on factors including input costs, carbon prices, yield effects and market premiums on low emission cotton. On the average farm modelled, the EEF system reduced emissions from 4.17 tonnes of CO₂-equivalent per hectare to 2.44 tonnes per hectare, a reduction of around 41.5%.
However, the economic outcome was more complex.
In the initial deterministic (i.e. not considering uncertainty) whole farm budget, the value of lower carbon costs, potential carbon credits and retained soil nitrogen did not fully offset the additional cost of the EEF. Consequently, the EEF system reduced estimated profit by $8.94/ha, or 0.42%, from $2,149.59/ha under the standard management practice to $2,140.65/ha when using EEFs.
A Monte Carlo approach to model different price and cost conditions
A Monte Carlo modelling approach was used – which is a method for analysing uncertainty by repeatedly simulating random outcomes – to test how different price and cost conditions could affect the result.
The model simulates 50,000 seasons based on 21 years of price and cost data, with yield being held constant to isolate the cost of reducing the carbon footprint of the property. Across those simulations, the alternative practice always produces lower emissions. Both systems showed very similar risk profiles, switching to EEFs reduced expected profit only slightly but does not materially change the grower’s exposure to financial risks. Neither system clearly dominates the other, with the distribution of the profit outcomes, profit variability and downside risk are broadly similar across the two systems.
In practical terms, the modelling suggests that EEFs can reduce emissions without materially changing the variability of farm profits or the likelihood of poor financial outcomes. The remaining profitability gap is small and could be closed through modest improvements in yield, price premiums or carbon revenues. What could make lower-emission cotton more profitable?
So, what shifts the economics in favour of lower-emission cotton production?
The results of the modelling suggests that relatively small changes could make a difference, including approximately:
- a 1% premium per bale for certified lower-emission cotton
- an ACCU price of around $60 per tonne
- around $56 per hectare of transitional support payment from government, industry or supply-chain participants
- an additional 0.1 bale per hectare, described in the presentation as roughly a 1% yield improvement.
Each of these is an alternative rather than an addition, and each includes a $50 per hectare margin above break-even to incentivise adoption.
The analysis also shows that carbon credits are only a small part of the potential benefit. Other benefits arise from the reduction in the farm’s carbon footprint itself, reductions in nitrogen losses and from nitrogen retained in the soil. By slowing nitrification, the EEF keeps applied nitrogen in ammonium form for longer, reducing losses through denitrification, nitrous oxide emissions and nitrate leaching while maintaining its availability for crop uptake. Any value assigned to residual soil nitrogen therefore represents nitrogen available to subsequent crops and a potential reduction in future fertiliser requirements, rather than reduced nitrogen uptake by the current crop.
Watch Hugh McCormack’s presentation
The Carbon Conversation
Hugh also joined The Carbon Conversation, a panel discussion exploring what carbon means in practice for cotton growers.
The session brought together Dr Susan Orgill, Hugh McCormack, Nigel Corish, Grace Griffiths, Ben Wark, Guna Nachimuthu and Sledge Taylor. CottonInfo’s Megan Woodward hosted the discussion, with grower and Cotton Australia Director Daniel Kahl moderating.
Looking beyond carbon emissions
The discussion broadened the carbon conversation beyond emissions accounting alone. Speakers explored how carbon connects with other farm priorities, including:
- soil health
- water use efficiency
- productivity
- resilience
- profitability.
A recurring theme was the need to understand the whole farming system before making changes. This means establishing a clear baseline, identifying the factors that constrain productivity, and considering how management practices such as rotations, tillage, soil amendments, nitrogen use and irrigation interact over time.
Finding the right approach for each cotton farm
Every cotton farm will need a different carbon strategy. Growers can get better results by taking incremental, evidence-based steps and assessing how each practice or technology performs within their own farming system.
Carbon projects and carbon markets also formed part of the conversation, but improving soil health and farm efficiency does not depend on participating in a formal carbon project.
For many growers, the more immediate value may come from:
- using inputs more efficiently
- strengthening productivity
- improving resilience
- gaining a clearer understanding of how the farming system is performing.
Farm economics remain central
Economics remained an important part of the discussion. When assessing lower-emission practices, growers need to look beyond yield alone and consider margins, risk and long-term productivity.
The discussion also recognised that short-term economic models may not fully capture some benefits, particularly those associated with soil health and resilience.
Overall, The Carbon Conversation reinforced a clear message: carbon is part of a broader farm management discussion. Growers increasingly make decisions about reducing emissions, improving efficiency and strengthening soil health as part of the same effort to build more productive and resilient farming systems.
Author: Hugh McCormack. Industries: Climate Change & Sustainability, Natural Resources & Agriculture. Expertise: Biodiversity & Environmental Economics, Economic Models, Environmental, Social & Governance - ESG.
