Welcome to Atlas Carbon’s quarterly market update by Sean Hoobin, Carbon Services Director, which provides a review of the key developments in the Australian carbon market.
Farmer benefits under the reforms
There has been a lot of noise about Australian carbon projects of recent, which can make a decision on whether to start a soil carbon project1 even more challenging.
The simple version of recent events is that – there will be an increase in demand for carbon credits (and a likely increase in price) and projects to supply these credits will need to be of a high standard.
To supply the increased demand for ACCUs2 will require large areas of land for carbon projects. This puts landholders in a position of power – the big emitters, governments, and carbon developers all ultimately need farmers, to give the OK to undertake a project on their land.
Farmers should be asking for information to demonstrate a carbon project is a good deal for them.
Carbon credit income is one potential benefit – and graziers should get their fair share. However, a fundamental issue is how a carbon project might impact your current farming business. Ideally, a carbon project will improve your core grazing business, making it more productive and profitable, with carbon credit income being the cream on top.
Just like any major investment decision for your property, it is important to understand the costs and the benefits upfront, to have some surety that it is the right move to make. Atlas Carbon has several tools to do just this – setting out potential grazing practice improvements and then estimating the likely productivity and carbon outcomes (see below for details).
The recent announcements are important to understand, however. They underpin how much investment will flow to on-ground projects, how projects will be scrutinised, and whether agricultural businesses should sell credits or address on-farm emissions.
The Safeguard Mechanism
The Safeguard Mechanism was passed in Parliament on 30 March after much wrangling over the details. It comes into effect on 1 July. The key elements are:
- The 215 companies which currently emit over 100 000 tonnes of carbon must reduce their emissions by 4.9% every year – by 2030 this will mean reductions of almost 30%.
- Reductions can be through internal actions (such as switching to renewable energy) or through purchasing offsets.
- Offsets can come from carbon project ACCUs or be traded from companies that have reduced emissions beyond requirements and have Safeguard Mechanism Credit Units (SMCU) to sell.
- A ceiling on credit unit prices of $75.
The additional changes that were negotiated include:
- An overall cap on operational emissions, which reduces over time.
- An assessment of emissions from new developments and how this might impact the overall cap.
- New gas developments required to have net zero emissions.
- All companies under the Safeguard Mechanism who meet emission reduction targets using more than 30% offset, to provide an explanation as to why they didn’t reduce more emissions on-site.
What do Safeguard reforms mean for landholders?
There will likely be an ongoing acceleration in the demand for carbon credits as each year companies need to reduce emissions by a further 4.9%. This means a greater demand for carbon projects and the land to undertake them on.
There are claims emitters will not decarbonise their operations and rely mostly on offsets. This is unlikely, as wherever it is cheaper to decarbonise within a company’s operations, these actions will be taken first. However, offsets will be an option once this cost threshold is exceeded.
Overall, the investment needed to achieve net emission reductions will be in the billions.
How quickly ACCU prices rise due the increased demand will depend on supply both of ACCUS and the newly created SMCUs.
Chubb review and ACCU reforms
For the Safeguard Mechanism to be successful there needs to be a strong supply of high integrity ACCUs from carbon projects. It is not surprising that the Independent Review of Australian Carbon Credit Units, chaired by Ian Chubb (the Chubb review) was released the day before the announcement of the Safeguard Reforms.
The Chubb Review headline finding was that “ACCU scheme arrangements are essentially sound” – meaning that offsets can be brought under the Safeguard Mechanism and bring genuine abatement. There were however recommendations to improve current arrangement including:
- Reforms to governance and data transparency.
- No new registrations for the Deforestation Method.
- Additional scrutiny of Human Induced Regeneration before credit issuance.
- Opportunities to develop innovative carbon project methods.
The Government is in the process of implementing the recommendations. How the reforms ultimately impact on supply, and thus price, is the big question. Bottom line is that there will be greater scrutiny to ensure carbon credits provide genuine abatement in coming years.
Will farm businesses need to address their own emissions?
A regular question raised by graziers is whether they will need to achieve Net Zero for their operations. The Australian Government has only, just, passed reforms to have the 215 biggest companies address their emissions. Expanding these requirements to smaller operations does not appear to be on the agenda.
The Federal Agriculture Minister has foreshadowed a National Statement on Climate Change in Agriculture. The aim is to support farmers to transition to low emissions production with no indication that there will be legislated requirements.
State Governments are also releasing policy on the matter. The Queensland Government published its Queensland Low Emissions Agriculture Roadmap 2022–2032 which also focused on supporting transition rather than mandated requirements.
However, pressure to provide climate and environmentally friendly farm produce may come from the supply chain and the consumer. With a number of Net Zero agricultural products on the market there may be a price premium, or even market access, opportunities/challenges in the future.
Regardless of any future government or market requirements landholders can take action now. Before a decision to inset or offset is made you need a carbon project. Once you have carbon credits you can decide when to hold them and when to sell them.
"So .. is now a good time to start a soil carbon project?"
Whether it is a good time to start a carbon project comes down to you and your business. However, it is definitely a good time to start investigating a carbon project, and the benefits it could bring.
With increasing demand and prices for ACCUs, graziers are well placed to benefit from a carbon project. Being informed is critical. How will a carbon project help your bottom line? Will a carbon project assist grazing productivity and help you achieve your property aspirations?
Atlas Carbon specialises in working with graziers. We work in partnership with MaiaGrazing, drawing on their expertise and the data they have gathered over 7 years and 1000 plus properties on how grazing practice can deliver carbon outcomes and improved production.
We offer a free, customised Cost-Benefit Report which estimates what a carbon project can deliver for your property, including carbon and production uplift, as well as infrastructure, input and carbon costs. All you need to do is fill in the EOI form.
If the report shows that a soil carbon project is promising, we then can develop a Blueprint for your grazing and carbon project which includes:
- Full day on-site visit from our specialists to discuss your property, as well as take soil and pasture samples.
- Developing a plan on how to maximise your property’s carbon and production potential based on site investigations and data.
- Ongoing support from our grazing specialists to assess practice adoption using MaiaGrazing software.
Armed with all this information you can then make a choice as to whether it is a good time for you to start a soil carbon project.
Get in touch with Atlas Carbon if you would like to know more.
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1 Soil carbon projects involve changing land management practices to promote the growth of plants and increase the amount of organic matter in the soil. These projects can help remove carbon dioxide from the atmosphere as well as improve agricultural productivity.
2 ACCUs stands for Australian Carbon Credit Units. One ACCU represents a tonne of carbon dioxide equivalent that has been avoided or removed from the atmosphere under the Australian Government's Emissions Reduction Fund (ERF) scheme.
