Australian Carbon Pricing Update

The Australian carbon markets have experienced a close to 8% rally over the past two months. Trading volumes have been well above the average daily levels, and the price action suggests strong demand from emitters.

  • Generic Carbon Units: As of the last trading day on 21 June 2024, they trade at around $34.15.
  • Human-Induced Regeneration (HIR) Credits: These credits reached a high of $34.95 and have now settled at $34.50.
  • Spread on Generic/HIR: The spread is around 35-55 cents.
ACCU Indicative Price Monthly Range 30 Day Volume Relative Demand
Generic $34.00 / 34.10 $32.60 / 34.50 >500k Tonnes Very High
HIR $34.35 / 34.75 $33.00 / 34.95 >500k Tonnes High
Savanna Burning $34.25 / 34.75 $32.80 / 34.75 >50k Tonnes Stable
Indig Savanah $50.00 / 53.00 $50.00 / 53.00 >70k Tonnes High
Soil Carbon $40 / 47.00 $43.00 / 48.00 <1k Tonnes Developing
Env Plantings $48 / 54.00 $48.00 / 54.00 <3k Tonnes Developing

Climate Wars Return: Wood Duck Leadership

It would be remiss not to include some commentary on the Liberal National Party’s nuclear strategy. I don’t hate the idea of nuclear for Australia, but it saddens me that, as a country, we cannot get our energy infrastructure ducks in a row. Both sides of the bench seem to be slaves to industry interests.

Two Simple Ways to Have Zero-Cost Nuclear Power

  1. Fund Nuclear Using Gas Revenues: The country can easily fund nuclear at zero cost to taxpayers by properly claiming revenues from our unnecessarily subsidized gas industry. By charging for extraction and scrapping the Petroleum Resource Rent Tax (PRRT), which is flawed and robs Australians, we could recover $20 billion to fund nuclear power.
  2. Utilize Carbon Markets Properly: Increase the demand for gas Australian Carbon Credit Units (ACCUs) and create a new nuclear power method. The nuclear facility could earn ACCUs throughout its build, effectively making it gas-funded nuclear power.

Climate Active vs. Net-Zero: Is Telstra the Canary in the Coal Mine?

Recently, Telstra announced it would stop using offsets to manage its Scope 3 emissions, instead diverting funds toward pure investment in decarbonizing its Scope 1 and 2 emissions.

Understanding the Difference

  • Net Zero: This means doing everything possible to decarbonize your business, using high-quality offsets only for residual emissions.
  • Carbon Neutral: This suggests neutralizing your emissions while simultaneously trying to reduce them. Critics argue that it aligns with business as usual since claims can be made immediately.

Both strategies are effective when part of a genuine decarbonization journey using high-quality carbon credits. A good benchmark for companies is to spend around $15-20 per tonne on a blended portfolio, combining offshore credits and $39-60 for Australian nature-based/social ACCUs.

Telstra aims to redirect Scope 3 climate action from offshore carbon projects to genuine localized energy solutions. Climate Active has been under pressure due to carbon-neutral product claims in fossil-generated products such as petrol and gas, alongside expensive license fees and burdensome processes. It’s possible to be both Carbon Neutral and Net-Zero, so each journey must be strategically considered.

Method Approvals: Unfulfilled Ambition

It’s crucial to read between the lines when science, legislation, politics, and market-based systems collide. Regulators are under pressure to deliver an effective and well-run scheme to meet Australian Government goals. This often leads to overly optimistic rollout schedules. For example, the failure to deliver the Australian Carbon Exchange and the important Integrated Farm Landscape Management (IFLM) method demonstrates this.

Most methods are under sun-setting arrangements, requiring reconsideration for additionality, scientific outcomes, and other factors. Here are some updates:

  • Landfill Gas: Discontinued, new method considered (Tech Avoidance).
  • Avoided Deforestation: Discontinued (Nature-Based Avoidance).
  • Human-Induced Regeneration: Discontinued (Nature-based removals), hoping to be replaced by IFLM with multi-year delays.
  • Environmental Plantings: Discontinued in September, near-term replacement likely (Nature-based removals).
  • Savanna Method: Replacement coming with savanna sequestration method (Nature-Based avoidance and removals).

Summary

The market is establishing a meaningful base at $32-$33. HIR is demonstrating a reasonable premium for differentiated projects. Market participants are mostly doing the bare minimum to cover liabilities. Expect more interest in trading during H2 2024 as more emitters begin executing their offset strategies.