You’ve heard the term, and you probably get the gist; Carbon credits are a tradeable permit that involves offsetting emissions. But if you get a little lost beyond that, read on.
At GreenCollar, we live and breathe environmental markets and excel in maximising their solutions. We’re especially good at collaborating with land managers to create environmentally impactful, carbon credit-generating projects. We’re so good, in fact, that GreenCollar provides the Australian Government with more Australian Carbon Credit Units (ACCUs) than any other project developer.
As Australia’s leading experts in the field, we’re not only helping to deliver carbon credits from land managers to investors, but also the good word about them. We’re here to explain what carbon credits are and what they offer — beyond being just an environmental certificate.
What are carbon credits?
Carbon credits are an environmental certificate…but they’re also so much more. In lay terms, carbon credits are like stocks: they’re a unit of investment. But while a stock represents a portion of a company, ACCUs represent one tonne of carbon dioxide equivalent stored or avoided.
For Land managers, ACCUs can be generated in two ways: by participating in agricultural and fire management projects that either sequester carbon or abate carbon. Sequestration is the natural process of carbon being converted to biomass by vegetation or stored in the soil—a process that can be maximised using a number of carbon farming methods. Abatement is a reduction of carbon, relating to activities that actively reduce a farm’s carbon output. Businesses buy credits generated by carbon farming projects to ‘offset’ the unavoidable emissions in their value chain
Plain and simple, ACCUs are a unit representing carbon reduction (known as carbon abatement). The Clean Energy Regulator (CER) issues them to registered projects as part of the Australian Government’s Emissions Reduction Fund (ERF). And just like stocks, once the project obtains them, they have their golden ticket to participating in a lucrative trading arena.
The carbon market
Australia’s modern carbon market began in 2012 with the Australian Federal government’s introduction of a carbon pricing scheme (later called the ERF), and was worth a roaring $6.5 billion after its first year.
The CER oversees the creation of ACCUs and purchases the majority of the ERF’s supply. However, demand from businesses, other government tiers, and private investors is growing significantly. Their purchases are part of the what’s called the ‘voluntary carbon market’, meaning they choose to buy up ACCUs to either invest or increase their company’s Environmental, Social and Governance (ESG) value.
For 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”, and to expediate the evolution of environmental markets the world over.
So, after land managers generate credits through carbon abatement or sequestration projects, they can be purchased on the voluntary carbon market, funding the reduction of atmospheric carbon in return for a versatile financial gain.
Carbon credit prices
Defining the exact monetary amount an ACCU is worth is decided by either taxes or trading.
Initially, Australia used a tax system which was affected through 2011’s Clean Energy Act. This initiative called for select companies to surrender the value of one ACCU for every tonne of carbon they emitted, with each ACCU fixed at $23. This worked to reduce pollution, leading to Australia’s greenhouse gases dropping by 1.4 per cent — a small number in scale but still the biggest leap we’d made in over a decade.
After the carbon tax kicked things off, the plan was to move to a market-based solution in 2015. However, due to some controversy this was expedited. Australia currently uses the trading system, meaning the CER sets a cap (total volume of credits available) and the market then decides the price through supply and demand.
The market version is going from strength to strength. More and more companies are committing to ‘net zero’ targets, a change in American government has renewed hope for the Paris Agreement, and climate action is at the forefront of the public psyche. The AFR reports that these changes and cultural perception mean that ACCUs are predicted to increase by anything up to 150 per cent by 2030.
How do carbon credit offsets work?
As noted, there are two sides to the carbon story: land managers who create credits through projects that pull carbon from the atmosphere, and entities (corporates or otherwise) who pay for these credits.
When entities use this method to cancel out their unavoidable emissions, it’s called a ‘carbon offset’. Carbon Offsets work by giving these entities a certificate of emissions reduction as a means to both give back to the environment and invest in its future.
Many of Australia’s largest companies are actively reducing their emissions and opting to further reduce their carbon footprint through offsetting the unavoidable emissions in their value chains. The ‘safeguard mechanism’ is also a driver of ACCU purchase, a mandatory obligation that calls for larger emitters to surrender ACCUs to reduce their net emissions. But in order to give them up, they need to get the credits. This means of acquisition is called ‘compliance purchasing’ and is an instrument for spurring the offsets market.
Companies need a broker to purchase these offsets. As Australia’s largest and most successful environmental market developer and investor, GreenCollar is a provider of choice for these offsets, and is adept at working with businesses to accelerate the transition to net zero.
Carbon credit income
If you’re a land manager
You can generate carbon credits through an eligible carbon abatement project, as set out by the CFI Act 2011. These projects will deliver measurable benefits to your land and supply you with ACCUs which you can then sell on or invest. Carbon credit income varies by land, but publications like Farm Online have reported substantial gains: “A 1000-hectare wheat farm that’s sequestering three tonnes per hectare per annum is going to be making 3000 carbon credits a year.” And with ACCU prices forecast to be well above $30 by 2030, there’s potential for a lucrative income stream that is additional to your existing agriculture income.
If you’re a business
Your investments are robust: owning and producing credits reduces and offsets your emissions, ensures compliance with government policy, increases ESG/CSR value through eco-friendly positioning, and supplies you with a unit predicted to soar in value.
If you’re an individual
The CER is set to launch an online exchange where individuals can trade in ACCUs just like land managers and corporates. This exchange means you won’t have to go through a broker that is part of a carbon permit registry, but a concrete launch date isn’t designated. In the meantime, you can choose to offset parts of your lifestyle through other providers like your energy retailer, telco provider or through organisations like Go Neutral, which enable you to offset things like your car for an annual fee.
Regardless of your position, ACCUs are rife with opportunity — and it just so happens that GreenCollar is the market’s leading experts. Our domestic and global team are best placed to advise on how to select high quality and high integrity Australian and international carbon credits across various project types and jurisdictions at competitive prices.