Carbon credit exchange to bring rigour, simplicity to complex market

Operating along similar lines to a stock exchange, the new carbon exchange will aim to increase the transparency of Australian Carbon Credit Unit pricing, simplify carbon credit trades and reduce trading costs.

ACCUs currently sell for anywhere from about $18 each to almost $60.

Confusingly, credit unit prices depend on assessments of a wide range of farm carbon sequestration management activities, or methodologies, and how they may be sold.

The carbon trade price fluctuates - just like financial and livestock market values - shifting quite a bit in the past two years as trading activity has surged and slowed.

Each ACCU represents one tonne of carbon dioxide abated or stored by a landholder implementing a carbon scheme project.

Carbon farming scheme projects may vary from improving animal effluent and methane management, to forestry plantings and changing grazing or cropping regimes to promote more atmospheric carbon sequestration into the soil.

Each ACCU, issued after five years of a project commencing, recognises a successful cut, or avoidance of, greenhouse gas emissions.

ACCU buyers include manufacturers, energy companies and transport businesses trying to counter the impact of their own emissions by encouraging farmers or others to absorb extra carbon dioxide on their behalf.

Buyers may also be banks and brokers accumulating offset credits for clients who need to "green up" their supply chain credentials, or carbon investors taking a punt on market prices rising.

At present farmers issued with carbon credits have been able to collect payment from the Clean Energy Regulator's quarterly auction, or keep them to sell later or on a secondary private market, or retain units indefinitely to cancel out their own farm or supply chain emissions.

The Australian Carbon Exchange, due to be launched mid-2024, would facilitate the purchase, clearing and settlement of ACCUs, and could expand to include other types of carbon units issued by Clean Energy Regulator schemes.

It would offer a government managed alternative service to the existing secondary market facilitators, including Xpansiv's public trading carbon marketplace, launched this year.

Last year the Australian Carbon Credit Unit Scheme issued 17.7 million credits - the most since it began in 2011.

A further 13.2m ACCUs were issued in the first nine months of this year.

All up, about 140m ACCUs have been awarded in the past decade, giving the Australian market a combined value estimated at more than $4 billion.

Yet, despite rising farmer interest in generating credits, and the federal government forcing the nation's biggest greenhouse emitting businesses to make a 43 per cent cut below 2005 levels by 2030, trading activity and prices have been much quieter in recent months.

Secondary market spot prices for the cheapest (generic) ACCUs issued for methodologies such as "avoided deforestation" on land previously approved for clearing, traded at $32 this week, down from about $37 a year ago, but up from $25 mid-year.

Premium priced "environmental planting" ACCU spot prices were currently worth about $55.

The September CER auction price was $18 (up from $14 in 2018) guaranteeing farmers payments for new credits at that price annually as part of their abatement contracts over the period of their carbon farming project.

Bendigo and Adelaide Bank carbon analyst, David Hine, said it was not surprising that farmers had to "work hard to understand" the nuances and complexity of the carbon market, including its terminologies, the accuracy of project price assessments and the local or global factors causing price movements.

"There are still not many people in the community with the experience or depth of knowledge to provide independent guidance," he said.

However, the planned carbon exchange should help add extra rigour to the market's requirements and more accurate price indicators for those trying to understand the trade.

Current market participants suggested the recent trading lull was partly due to Australia's biggest emitters "getting their houses in order and looking at options" before being forced to buy offset credits if they could not reduce emissions by 5pc annually.

Next year should see big polluters at 215 sites nationwide, who produce more than 100,000 tonnes of carbon emissions annually, crank up their credit buys so they meet new emissions safeguard obligations commencing in 2025.

Meanwhile, Rural Bank's Mr Hine noted the carbon market was a long term play, likely to be frequently influenced by unexpected world events out of local control.

Farmers were probably best to focus on how best to optimise carbon for farm productivity rather than dwell too much on immediate credit market value variables.