Written by:

Graeme McConnell | Managing Director | 0418 900 065

 

In the last month, there have been two significant but incremental announcements that will impact the way we think about the carbon market.

To start at the beginning, for those not aware an ACCU is an Australian Carbon Credit Unit and represents 1t of carbon dioxide equivalent (CO2e). While the industry has been in its infancy, the industry has arguably run ahead of regulation, with some elements pushing beyond reasonable boundaries. This includes having confidence that for each ACCU generated, there is actually 1t of carbon sequestered.

The Chubb review was established in response to these questions and the results released on January 9, 2023. This considered the application of the ACCU (the regulated Australian Carbon Credit Unit) system, the effectiveness and roles of the regulating bodies, as well as the validity of certain methods – three were considered in detail the outcomes of which are discussed below. (the Chubbs review)

The second area of interest is the release of the government’s position on the “Safeguard mechanism” and the impact on emitters, which will in turn, impact generators of ACCUs (positively) – potentially you.

Along with the increasing global  pressure on addressing emissions, this is a further indication of the current Australian Government’s commitment to driving change. While you can only have limited impact on the external pressure on your business, you do have the ability to make decisions on how these pressures impact your business both positively and negatively.

The Chubb review

The Chubb review was initiated to ensure “the carbon  crediting  framework  maintain  a strong and credible reputation supported by participants, purchasers and the broader community”.

The review found that the ACCU  was sound and the scheme governance was appropriate, they also provided a number of recommendations to enhance the current scheme.

My summary of the key recommendations that I expect will impact farmers are in the following, but if you want to see these as presented by the Chubb review, please go to: https://www.dcceew.gov.au/sites/default/ files/documents/independent-review-accu- exec-summary.pdf

The recommendations

• The roles of the Clean Energy Regulator (CER) are recommended to be separated to reduce potential for a conflict of interest and improve transparency. While these are outlined, this will develop as the findings of the review are considered by Government.
• There is the expectation that more information about   carbon    projects will become public, also increasing transparency and visibility of what is working.
• The review also considered three methods in detail, with the following outcomes
  • Avoided Deforestation – Where someone who has a right to clear land chooses not to, has the ability under this method to claim a credit for carbon that would have been emitted (but now won’t be) through the clearing of the This was mainly in Queensland and has made up close to 20% of the ACCUs allocated to date.
    • The review found this was no longer an acceptable method to claim
  • Human Induced   Regeneration   – or returning  areas  to  native  forest by removing the factors that have damaged or degraded the Occurring mostly in pastoral areas, this can also affect large areas.
    • This was deemed sound, although there will be additional checks in place to ensure
  • Landfill Gas methods – The collection and use or destruction of gas from landfill
    • This was also considered appropriate with some additional requirements in

Each of the above will collectively serve to reduce the supply of ACCUs in the market along with increasing confidence in the integrity of the ACCUs produced. In normal market conditions, this should place upward pressure on ACCU pricing. The remaining recommendations target process and first nations interactions but also include requirements on Carbon Service providers and advisors, which will be welcome change.

The safeguard mechanism and the proposed changes

The safeguard mechanism is designed to impact facilities with greater than 100,000t of emissions and places a requirement on them to keep their emissions below a baseline limit. The safeguard mechanism has been in operation since 2016, with the baselines to reduce in order to help achieve net Zero by 2050.

• Facilities that achieve below the baseline level will receive credits
• Trade-exposed businesses will have some level of adjustment to ensure they are not disadvantaged compared to international

The baseline adjustments to date have been at a low rate. The proposed changes will increase this to now make this much tighter with a proposed 4.9% annual reduction in emissions intensity, which will equate to a 34 to 35% reduction over the period.

Under the scheme, facilities will be encouraged to firstly reduce emissions by making their facilities more efficient and secondly by purchasing ACCUs to offset their emissions to get below the mandated baseline.

The initial estimates suggest that an additional 170m ACCUs will be added to demand to meet this requirement but will be subject to the level to which the emitters can reduce their own emissions.

Summary

The net effect of the above is that if adopted into legislation, there will be both a reduced availability of ACCUs and a significantly increased demand.

This likely shortage of ACCUs is also highlighted in a paper from the CBA which is excellent reading if you are looking for some analysis – Sustainable Economics, “ACCU shortage risks to heighten from 2023-24 to 2029-30”, 19 Jan 2023.

Both announcements will impact your decisions as a farmers, given that in time you will likely have to account for your own emissions on farm, but also that you currently have a significant opportunity to produce ACCU’s.

What can you do as a grower?

• Keep learning in this space, and build your knowledge on the options available and how they might apply in your
• Consider how you might begin to reduce your own emissions – Agriculture will need to account for its own emissions at some
• Consider projects on your property. The sooner you start, the sooner you have a baseline before which, any improvements are not

Via your consultant, Planfarm and Terrawise can help you through each of the above.

Further reading

This area is developing rapidly, but if you want to read more:

1. CBA report on “ACCU shortage risks to heighten from 2023-24 to 2029-30” from their Global Economics and Markets – Sustainable Economics division, provides detailed analysis of the expected impact of the proposed
2. Chubb review recommendations.
3. There is a wealth of knowledge on the CER website – the basis on the safeguard mechanism.
4. The DCCEECW website contains the Executive summary and full Chubb review reports.