Carbon

Carbon markets: Three clear trends of 2023

Eric Barker, 15/12/2023

AUSTRALIA’S carbon market has seen some significant changes this year, with the Federal Labor Government introducing a string of new and updated legislation.

The year started with the release of the “Chubb-review”, which was headed up by former chief scientist Professor Ian Chubb and investigated the framework underpinning the carbon market. The review, which was supported by the Government, largely gave the carbon market a clean bill of health, while recommending some small changes.

The other big change was the Federal Government’s amendments to ‘safeguard mechanism’, which is the main legislation forcing large emitting companies to reduce emissions or buy offsets.

While the announcements have been well documented, AgCarbon Central has been looking into the carbon market reaction.

Prices relatively stable

Prior to this year, the market for Australian Carbon Credit Units was characterised by volatility. Last year started with a rally to $56.50, before former energy minister Angus Taylor changed the rules and the market plunged to $35 in a matter of days before slipping to $28 over the next couple of months.

This year has not been as volatile, with the market topping at $38.95 at the start of the year and slipping to $28.25 in July, before hovering around the $30 mark for the rest of the year.

Supply has largely driven ACCU prices this year, with tight supply at the start of the year as the Clean Energy Regulator held off on issuing credits for some methodologies while the Chubb-review was taking place.

Following the Chubb-review the CER started issuing record numbers of credits, which saw ACCU prices drop from about $38 to $28 over the month of June.

The changes to the safeguard mechanism are expected to increase demand in the coming years, with companies needing to purchase ACCUs if their emissions exceed a certain baseline – with that baseline declining over the years between now and 2030.

However, safeguard facilities are not required to report their emissions balance until 2025 and several analysts say they are currently developing strategies to meet the regulations.

Property industry sources have told AgCarbon Central some safeguard facilities, like oil and gas companies, are thinking about purchasing agricultural land with carbon potential to meet the requirements – with the ag asset hedging them against the notoriously volatile carbon market. A prospect we will be keeping an eye on.

Soil carbon credits starting to flow

Part of the CER’s record issuances of ACCUs were the first large-scale issuances of soil carbon credits. Soil carbon is one of the main methods to work directly with agricultural systems.

Uncertainty was building with soil carbon as only one project had generated credits in seven years of existence. Now seven projects have received credits and some of those projects are worth millions of dollars.

Agriprove managing director Matthew Warnken said the company had sold small parcels of credits for more than $45 to a buyer looking for specific characteristics.

Mr Warnken emphasised the premium credits were only sold on a small scale, with some forward sold at a discount to the spot price to help finance projects and producers looking for other ways to monetise soil carbon. He said some were waiting for a future high prices and others were looking at carbon neutral certification.

New registrations of soil carbon projects are down on last year, with 78 registered this year compared to more than 100 last year.

Mulga projects on the nose

While soil carbon has been gaining momentum as an industry, other methodologies which are commonly used in the mulga-lands of Western Qld and NSW are seeing some buyers exercise caution.

Early last year, a group of scientists led by Australian National University professor Andrew MacIntosh raised concerns about the integrity of the Human-Induced Regeneration and Avoided Deforestation methodologies, which ultimately sparked the Chubb-review.

The Chubb review responded by recommending the avoided deforestation methodology be cancelled and a re-think of HIR. The HIR is expected to be rolled into a new methodology called the integrated farm method, which is expected to be finalised next year.

However, Mr MacIntosh has still been raising concerns about the AD credits still in the market place and has been calling on the government to make changes to the current projects.

It appears carbon buyers, who have been in the market to comply with regulations have been avoiding AD credits.

AgCarbon Central is planning to more on this subject at the start of next year.

 

 

 

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Comments

  1. Jack Twyford, 16/12/2023

    It’s not a straight forward decision to promote soil carbon storage. Maybe maintenance at present soil levels is a better objective unless a detailed understanding of total nutrient levels/ availability can be gleaned.
    As an example, why should a farmer consider increasing his residual soil carbon by 1 ton ACCU when he can use it to produce 1 ton of wheat for $300+ …?

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