Don’t mention the (climate) war…

bradkerin Market Intelligence

by Peter Castellas, Chief Executive Officer of the Carbon Market Institute.

As climate change again rises to the top of the Australian political agenda, any area of policy convergence amongst major parties will be celebrated and supported by business.

The development of the domestic carbon credit market is one of those rare areas that both major parties support and which could grow into a national industry of significance and a potentially massive high-value commodity export market.

The Coalition and Labor are both committed to developing the generation and supply of Australian Carbon Credit Units (ACCUs). The key difference in policy approach between the Coalition and Labor relates to who is the purchaser of the ACCUs.  The new Environment Minister has indicated she is considering pitching internally for more funds for the Emission Reduction Fund for the government to continue to purchase ACCUs through auctions.  Labor is a strong supporter of carbon farming and will likely outline a market mechanism that will drive private sector demand for ACCUs in a similar way to how the private market for credits evolved quickly under the Carbon Pricing Mechanism.

Domestic carbon offsets, in the form of ACCUs, will be needed in order to contribute to Australia’s Paris targets; provide compliance options for large emitting industry as domestic policy settings inevitably tighten; and meet the rising demand from the number of organisations that are going carbon neutral.

From a market perspective, the transition from public funding of abatement to a private market is preferable to ensure the required scale of sustainable investment in carbon abatement and emissions avoidance. Enhancing the existing Safeguard Mechanism legislation so that it has declining baselines that reflect the trajectory of our required Paris commitment reductions, is an example of a market-based approach that will drive private sector demand for carbon credits.

Once the policy makers give us the market signal, large emitters will seek to meet compliance and hedge their carbon risk exposure, long term supply contracts will be struck, a liquid secondary market will emerge and private sector investment will drive the market for ACCUs. Many of the projects will be land based, creating jobs and economic activity in rural and regional areas.

Meeting domestic demand and emission targets is critical but policy makers also need to understand and have a vision that there will be a global demand for high quality credits as many countries move to implement their Paris targets. Australia could and should be a net exporter of carbon credits. The rules of how the new global carbon market and trade in emissions will operate, are being negotiated at COP24 in Poland in December this year, and exporting ACCUs is one way Australia can optimise its deep capability as global demand for offsets kicks in.

In conjunction with robust policies and market activity to drive the clean energy, energy efficiency and low-carbon innovation transition, the generation, supply and use of carbon offsets will need to be an important component of many countries’ plans to head towards zero-net emissions.

Australia has an established carbon market that is well designed, governed and administered with sophisticated project developers, increasingly engaged land holders and vast natural resources to accommodate a significant increase in land-based project activity. State Governments, like Queensland with its $500 million Land Restoration Fund and commitment to R&D, capacity building and valuing co-benefit,s will also help build the platform for the growth of the industry.

In the lead up to the next election it is critical that we see Federal policies for how a market-based approach to emissions reduction can drive the growth and expansion of our domestic carbon market, so it can build a sustainable supply of carbon credits in a post-Paris environment where local and international demand is destined to grow.