Australia could generate 300 million carbon credits at a cost of only A$1-4 each and another 200 million below A$16, potentially paving the way for a two-tiered domestic carbon market and reducing the need for international emissions units, analysts Reputex said Tuesday.
In an analysis, the consultants said Australia could have access to a large number of emission cuts at prices far below previous forecasts.
The report said the country could generate around 300 million tonnes of CO2e cuts from energy efficiency projects in the buildings, industry, and waste sectors over the next seven years, at prices around A$1-4 ($0.75-3.00).
A further 200 million offsets could be generated in the agriculture and land-use sectors at prices ranging from A$11-16, Reputex added.
In comparison, the country’s Clean Energy Regulator bought 45.5 million Australian Carbon Credit Units (ACCUs) at an average price of A$12.25 in the last ERF auction.
“The availability of low cost domestic carbon credits debunks the myth that Australian offsets are expensive,” said Reputex executive director Hugh Grossman.
The potential 500 million tonnes in cuts at prices below A$16 each would equate to more than half of the total 900 million tonnes the government has estimated it will need to meet its 2030 Paris pledge, although recent land-use data indicate the actual goal may be much harder to achieve.
TWO-TIERED MARKET?
With a large amount of cheap carbon cuts identified, it might be more tempting for the ruling coalition government to look closely at a CO2 pricing mechanism during the country’s scheduled 2017 climate policy review.
Reputex’ findings present the opportunity to design a flexible domestic market, in which a single uniform price for all participants may not be necessary, according to Grossman.
“With such large credit volumes available at two clear price levels, policymakers have flexibility to use different credits for different purposes,” he added.
“For example, very low-cost efficiency credits could be accessible to trade exposed industries facing a future liability under the safeguard mechanism, while longer-term land-use projects could continue to be supported by the ERF purchasing.”
NO COUNTRY FOR OLD CERS
Australian industry has long sought the ability to use UN-issued offsets to meet part of the nation’s GHG target as a low-cost safety valve, and Environment Minister Greg Hunt said in December he expected the 2017 review to address that.
But Grossman questioned the need to import large numbers of CERs trading at below A$1 each if a significant amount of cheap domestic offsets were available, which he said was “almost the holy grail of climate policy”, especially for those concerned about seeing Australian money disappear abroad.
“Keeping compliance costs low for industry is critical, however if we can do that by using cheap domestic credits, we may not immediately need international units in Australia,” he said.
“Using low-cost domestic credits could buy time for policymakers to learn by doing before they commit to any international credits, while ensuring Australian investment flows into Australian activities, particularly for carbon farmers.”
By Stian Reklev – stian@carbon-pulse.com
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