The term ‘carbon market’ has only entered into popular usage within the last few years in Australia, even though carbon pricing has been around for the last decade. Established as part of the Clean Energy Act 2011 and coming into effect in July 2012, the Gillard Labor government’s carbon pricing scheme—later repealed and replaced by the Emission Reduction Fund (ERF)—was administered by the Clean Energy Regulator (CER) and made an astronomical $6.5 billion in its first year of operation.
The carbon market comprises both compliance and voluntary demand. Both the compliance and voluntary markets are driven by businesses purchasing carbon credits to offset their emissions, with the distinction being the obligation to do so.
Compliance is driven by the legal requirement for businesses who have reached their emission limits to offset the additional carbon in their value chain. The voluntary market however, operates at the discretion of the business, often delivering against Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) targets. So as an investor, this effectively means that after land managers generate the credits through carbon restoration or sequestering projects, you then buy them on the voluntary carbon market, and fund the reduction of atmospheric carbon in return for a versatile financial gain—either indirectly as a proven brand strategy, or directly for sale in an emerging secondary market.
Since the establishment of the carbon market in Australia, the majority of credits have been sold back into government, with the CER both overseeing the creation of Australian Carbon Credit Units (ACCUs) and then purchasing the majority of the ERF’s supply. However, demand from businesses and private investors is growing at an unprecedented rate; this year, the ACCU price grew to a record high of $22.00/t in July. This trend is reflected globally, with record highs also recorded in Europe’s carbon market as some of the world’s biggest companies strive to meet net zero targets. Recently in the Financial Review, the Executive Director of carbon consultancy RepuTex was quoted as saying: “What is driving demand in the Australian market is not policy, it is stakeholder pressure, and that is primarily from investors.” Our local carbon market has now grown to offset around 15 million tonnes a year and according to RepuTex, ACCU prices are set to double by 2030.
For participating businesses, the peak industry body advisor is the Carbon Market Institute (CMI). Their mission is to “help business manage risks and capitalise on opportunities in the transition to a net-zero emissions economy”. As well as championing international climate obligations, the CMI works to ensure the integrity of the market and the outcomes for participants, facilitating commercial opportunities and delivering market insights to stakeholders.
Consulting with CMI is an invaluable part of both participation in the carbon market, and understanding how to maximise returns. But participation in the carbon market starts with doing your research.
For investors and business, the CMI actually forms a good beginning of such a plan. The Carbon Project Registry is a marketplace built into the CMI, and showcases a number of projects occurring around Australia. Doing the requisite due diligence on the nature of carbon farming projects is important as regulation governing the voracity of their benefits increases.
All investors looking to enact a verified carbon neutral strategy for their organisation need to follow the Carbon Active Carbon Neutral Standard (CACNS) guidelines which assesses Net Zero plans for relevance, completeness, consistency, transparency and accuracy. Carbon projects can then be approached individually or by partnering with project developers such as GreenCollar who have extensive due diligence experience and aim to maximise environmental, social and economic benefits from every project. This in turn delivers investors a high-quality and high-value environmental package to meet both CACNS obligations and ESG commitments, while providing investors with a comprehensive story for their brand.