The corporate community is racing ahead of Australian climate policy, creating a de-facto price for greenhouse gas emissions despite the federal government’s insistence that a carbon price is a damaging tax on business.
Australian companies are not legally required to reduce their carbon emissions, which can be generated through energy use, industrial processing, or methane from livestock. The government’s technology roadmap policy calls for investment in lower emissions technology, aiming to reduce the cost of implementation and thereby increase industry uptake.
Australian businesses are voluntarily ramping up investments to offset their emissions in an effort to get ahead of a global push to decarbonise polluting industries. Credit:AP
But businesses are voluntarily ramping up investments to offset carbon emissions, which are generated by projects that sequester carbon in the soil, re-growing vegetation, or invest in avoided de-forestation for ongoing carbon capture in trees that could otherwise be lost to land clearing.
Driven by the global shift to ambitious climate action, Australia’s carbon market has surged 21 per cent in the calendar year to date, according to market analyst RepuTex, with the spot price rising to $20 a tonne. It expects demand to rise over the decade and push the spot price over $50 a tonne by 2030.
“Carbon offset demand in Australia is supported by the push to reach net zero emissions, given carbon offsets are a key tool in the global emissions reduction arsenal,” said RepuTex executive director Hugh Grossman, who advises many of Australia’s largest emitting companies.
Australia has not set a deadline to reach net zero and under the Paris climate agreement it is bound to reduce emissions by at least 26 per cent by 2030. Other wealthy nations have committed to net zero by 2050 and many have set targets to halve emissions by 2030.
Businesses and investors have seen carbon emissions constraints slapped on markets in nearly every other developed economy, and they assume the same will happen in Australia in coming years as well.
Most of Australia’s largest emitters, including big miners and energy companies, have made voluntary pledges to decarbonise their operations by 2050. They are big players in the carbon offset market, with big miner Rio Tinto pledging to invest hundreds of millions of dollars over five years, while gas giant Woodside has invested more than $100 million in the past decade in reforestation.
The high demand for voluntary credits means “Australia already has a de-facto carbon price”
Many companies are buying up offsets now while they’re relatively cheap Down Under, anticipating a spike similar to the European Union where, under emissions reduction deadlines, prices doubled over the past 12 months to $85 per tonne.
The federal government has campaigned on a pledge to reduce emissions by “technology not taxes”, and Prime Minister Scott Morrison says he will “not tax our way to net zero by 2050”.
“Getting to net zero, whether here or anywhere else, should be about technology not taxes and high prices,” Mr Morrison said in February.
Energy and Emissions Reduction Minister Angus Taylor said in February that the Labor party was considering a “carbon tax or carbon price in some form, which will impose costs on the Australian economy, on Australian households and businesses”.
Experts from Ernst and Young and Deloitte said corporate demand was being driven by social and economic factors and would remain strong enough across the next decade for the offset price to exceed $50 a tonne.
Ernst and Young Oceania partner for climate change and sustainability Emma Herd said the high demand for voluntary credits means “Australia already has a de-facto carbon price”.
“Why are companies taking such a strong position on climate change when they don’t have to? They are looking at the way the world is going,” Ms Herd said. “They expect one day there will be a carbon price here (in Australia) and they want to get ahead of it. Also, their customers want products that are carbon neutral.”
Deloitte Australia partner energy transition and decarbonisation John O’Brien said the offset market could be volatile in the near future, but overall demand would increase and “the price will go north” above $50 a tonne.
“Demand for offset will be significant and supply won’t be able to keep up,” Mr Obrien said.
Australian carbon credits, which are verified by the federal government, have a strong global reputation. Government undertakes its own verification and buys credits directly from private operators undertaking offset activity, or it auctions them to emitters. Alternatively, some private companies pay for their offsets to be accredited by the government and sells them directly to the market.
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