The economics of Australian agriculture’s participation in carbon offset markets Helal Ahammad Chief Analyst ABARES.

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The economics of Australian agriculture’s participation in carbon offset markets Helal Ahammad Chief Analyst ABARES

Agricultural emissions, 2008 Source: DCCEE (2010)

Challenges and opportunities for carbon offsets The supply side

The ‘additionality’ challenge

The ‘transaction costs’ challenge 1. Search for information 2. Develop or adopt a methodology 3. Develop project proposal 4. Locate buyer or seller 5. Apply for approval 6. Draw up contracts 7. Settle contract 8. Monitor, report and verify offset project 9. Apply for credits from Regulator 10. Transfer credits

Opportunities for ‘aggregators’ the majority of Australian farms emit less than tonnes of CO 2 -e a year high transaction and administration costs

Opportunities for institutional innovations institutional innovations key to the success of the CFI contract design with two-part payments –an upfront payment – ongoing payments on the delivery of offset credits

Challenges and opportunities for carbon offsets The demand side

Demand for carbon offsets domestic voluntary market international voluntary market domestic mandatory market international mandatory market

Domestic demand for carbon offsets demand for carbon offsets in ‘voluntary’ market is small ‘voluntary’ purchasers of offsets are primarily driven by corporate social responsibility to create demand for agricultural offsets from the CFI a domestic carbon price is needed

Schemes around the globe schemestart dateallow offset creation?Price, t CO 2 -e (Jan. 2011) Kyoto Protocol2008yes (CDM/JI) ~ €11.50 (A$15.50) EU ETS2005limited (CDM/JI)~ €15 (A$20) NZ ETS2008limited (some CDM/JI)NZ$12.50 (A$9.25) RGGI2009yes (scheme only)~ US$2; capped at US$10 Alberta2007yes (scheme only)C$15 (capped) MGRAtbalimited (US & Canada only)n/a WCI2012limited (to be announced)n/a AB yes (REDD)n/a MGRA: Midwestern greenhouse gas reduction accord WCI: Western Climate initiative AB 23: Californian Assembly Bill 32 (Global Warming Solutions Act) CDM: Clean Development Mechanism JI: Joint Implementation REDD: Reducing Emissions fr Deforest. & Degrad.

Surplus of Kyoto units in the EU and Australia, 2009

Demand for carbon offsets domestic voluntary international voluntary domestic mandatory international mandatory

Demand for carbon offsets domestic voluntary international voluntary domestic mandatory international mandatory

Demand for carbon offsets domestic voluntary international voluntary domestic mandatory international mandatory

Demand for carbon offsets domestic voluntary international voluntary domestic mandatory international mandatory

Demand for carbon offsets domestic voluntary international voluntary domestic mandatory international mandatory

Summary there are challenges as well as opportunities aggregators and institutional innovations can play a key role to overcome some key challenges limited demand for CFI credits from international markets domestic carbon pricing policy with offsets provisions will play a key role

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