The concessional loans courtesy of the Clean Energy Finance Corporation (CEFC) and Rabobank are intended to cover the upfront cost of planting native trees on their properties before the vegetation starts sequestering carbon dioxide and paying itself off via carbon credits.
The agribusiness financier will kick in 0.15 per cent of the discount and the government-owned green bank one per cent, with the latter committing $200 million towards the endeavour.
CEFC head of natural capital Heechung Sung was hopeful the meaningful discount would encourage more farmers to participate.
"This program provides a way for the farming sector to help reduce emissions through carbon sequestration and to potentially create an additional income stream for farmers," she said.
Under the Australian carbon credit units regime, landowners and farmers can participate in a number of land-based carbon removal schemes to attract extra income.
Participants earn credits for every tonne of carbon stored or avoided, which can then be sold to the federal government or the secondary market where they are bought by companies wanting to offset their emissions.
Ms Sung said environmental planting sequestration had not been as popular as the lower cost techniques, such as human-induced regeneration methods that involve letting pastures regenerate and running fewer cattle and sheep.
By providing concessional loans and leveraging Rabobank's relationship with agribusiness clients to educate them on the opportunity, Ms Sung is hopeful more farmers will take the leap and produce more of the high-quality environmental planting credits.
"The reality is, it is the these types of carbon credits under the environmental planting method are quite easily quantifiable," she told AAP.
"They create a broader environmental positive impact than other carbon credit methods, because you are planting a diverse species of trees in that particular region."
Planting trees can additionally provide shelter for livestock, reduce soil erosion and lead to other co-benefits.
While farmers have no regulatory obligation to produce carbon credits, Ms Sung said customers were demanding change and companies were under pressure to decarbonise their supply chains.
"For example, the certain key markets that Australia exports to, like Europe, have certain standards on the type of commodities that you can export to them, they have to be of low carbon and sustainable in nature," she said.
"That movement, or that trend, hasn't eased."
Rabobank general manager country banking Australia Marcel van Doremaele was pleased to be working with the CEFC on the project.
"Initiatives like this help to create more pathways for farmers to support their sustainability strategies which have positive impacts on nature complimentary to their existing farming operations," he said.
While not a replacement for decarbonisation across the economy, Climateworks Centre analysis suggests tree-planting and other legitimate land-based carbon dioxide removal techniques will need to be scaled up to stay within Paris agreement temperature limits.
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