A surprise intervention from the Australian government left many participants in the country’s carbon market surprised a few weeks ago.
With no forewarning, energy and emissions reduction minister Angus Taylor announced that holders of contracts to sell credits to the government’s Emissions Reduction Fund would be able to buy themselves out of those agreements, allowing them to resell the credits on the open market at a theoretically higher price.
This would have likely been welcomed by holders of those contracts, given that selling into the market wasn’t an option for many of them when they signed their agreements.
But for others who had planned to come to the market with credits soon, there was concern that a sudden increase in the amount of credits available on the market could lead to a sustained drop in the spot price.
Carbon Market Institute chief executive John Connor said at the time: “While we welcome that the release will be staged and that exit payments will be used for ‘emission reduction measures’, we are concerned about the message this sends to the market about the ability for government intervention without transparent and public consultation at any point in time, if market dynamics change.”
If that wasn’t enough, last week professor Andrew Macintosh, the former head of the government’s Emissions Reduction Assurance Committee (the body essentially in charge of overseeing the integrity of carbon credits in Australia), went public with claims that all major methods used for generating carbon credits had “serious integrity issues, either in their design or the way they are being administered,” leading to striking headlines that dubbed the whole scheme a “fraud” and a “rort.”
Speaking to investors in Australian farmland since then, most are not too concerned by these revelations…yet.
While Macintosh’s name was on four academic papers published last week that called the integrity of many credits into question, he was focusing particularly on credits issued for human-induced regeneration.
The argument essentially went that credits issued to landowners for not clearing land when they had permission to do so are sometimes fraudulent because that land would not have been cleared anyway, and that credits issued for regenerating ecosystems through revegetation and planting were often overestimating the amount of new growth. In both cases, Macintosh was arguing the government has paid out vast sums of money without receiving the emissions reduction benefit it claims to have achieved.
A lot of the focus around carbon credits among ag investors has been around soil carbon, which is a different method than the human-induced regeneration approaches described above.
Some have garnered credits from the HIR method, too – and while we are not suggesting they have done so fraudulently, the potential for greater scrutiny and government intervention is a real one.
It’s not something to be feared, though, and in a similar vein to the conversation that has been had around Australian water markets, increased transparency and regulation should help the market mature further and only increase its attractiveness to private capital.
After all, carbon credits and offsets will be a vital part of the journey to reaching net-zero emissions. Any attempts to assure their integrity should be welcomed.
Wondering why we have not published the winners of the inaugural Agri Investor awards on April 4 as promised? Well, we’ve held the announcement back until the start of May because we have something bigger and better planned for you.
Check out our latest ESG report for a taste of what we have in store.