Savannah burning

The Australian carbon markets rallied towards the end of last week. Overall bids in the $32 range remain. We can expect entities to utilize end-of-financial-year budgets to secure hedging requirements.

ACCU Indicative Price Monthly Range 30 Day Volume Relative Demand
Generic $32.75 / 33.25 $32.60 / 34.50 >400k Tonnes Very High
HIR $33.50 / 34.00 $33.00 / 34.50 >350k Tonnes High
Savanna Burning $33.30 / 33.80 $32.80 / 34.00 >25k Tonnes Stable
Indig Savanah $49.00 / 53.00 $50.00 / 53.00 >50k Tonnes High
Soil Carbon $40 / 47.00 $40.00 / 48.00 <1k Tonnes Developing
Env Plantings $47 / 55.00 $47.00 / 54.00 <5k Tonnes Developing

Human-induced regeneration credits traded at $34 last Thursday, and there was a generic trade on the same day at $33.25, which saw the generic-to-HIR spread extend out to $0.75.

Volumes have continued to grow, as demonstrated below for the past 12 months with the average daily $ value.

Baseline Scenarios Remain Confused for Emitters 

It is evident that several large emitters in the market require both internal and regulatory clarity around offsetting obligations under the safeguard. Particularly, the gas industry, which has recently been the beneficiary of Australia’s future gas strategy, will expand the need for offsets.

In short, the fossil fuel industry believes that CCS (Carbon Capture and Storage) is the solution, and the lobbying efforts of the industry are trying to secure even more generous concessions from the government, which, if provided, will further debase the effective mechanism for which the safeguard was originally created to bring our emissions down. If CCS is a raging success where we are not watering our farms with chemical-laced fizzy water, and there are stable geological formations to accept the CO2, I will stand corrected. Based on current evidence, it is marginal at best.

Savanna Burning Method Spotlight 

Recent trading activity has seen an uptick in the volume of savanna credits. Traditionally, the savanna method has been categorized as an avoidance strategy, achieving carbon abatement through early-season burning, also known as cool burning. This practice, carried out for thousands of years by the original inhabitants of this vast land, gently removes the underbrush while preserving the majority of established shrubs and trees.

A significant development in the savanna space is the transition towards the new sequestration method. This approach promises to deliver more Australian Carbon Credit Units (ACCUs) to the market in the medium term and potentially command premium prices due to its focus on carbon removal. The new model includes CO2 removal benefits from early-season burning, which maintains logs and enables wooded areas to sequester more carbon that was previously unaccounted for.

However, this method is not without risks. Large wildfires in the late season can lead to over-crediting and potential clawbacks. To mitigate these risks, many newly issued units may be withheld from sale for approximately 12 to 18 months. Additionally, the new method poses challenges such as the need for Indigenous Land Use Agreement (ILUA) negotiations and benefit-sharing arrangements, which are time-consuming and require significant effort. These long-term agreements should not be underestimated in terms of the time and resources they demand.

As the savanna credit market evolves, stakeholders must navigate these complexities to harness the full potential of sequestration methods while managing associated risks effectively.

Summary 

The Australian carbon market at current levels represents excellent buying. The market is being lulled into a false sense of price security with the range effectively maintained between $33-38 for the past 24 months. With the focus on method integrity, new method challenges, benefit sharing, and overall returns to proponents, navigating the market remains challenging.


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