Australian landfill owners may enter the carbon market to potentially buy several million UN offsets as part of efforts to compensate for carbon tax costs they have passed on to customers, a move that may in turn boost the amount of AAUs the government can carry over from the first Kyoto commitment period.

The Australian Landfill Owners Association (ALOA) and the Australian Local Government Association (ALGA) on Wednesday published the outcome of more than year-long negotiations over how landfill operators can refund carbon tax costs.

When the carbon price was introduced in 2012, landfill operators passed on their cost by charging its customers upfront, based on calculations on how the waste would decay – and emit methane – gradually over many years.

But because the carbon price was repealed last year, the operators must now refund the costs passed on for the period after 2014.

They will pay back directly to local councils and other clients where those who have carried the cost can be easily identified, amounting to A$100 million ($73 mln), according to Environment Minister Greg Hunt.

But in cases where it is too difficult to establish who should receive the funds, landfill operators will either buy carbon credits and voluntarily transfer those to the government, or invest in projects that reduce carbon emissions, the agreement said.

FRESH CER DEMAND

It is not clear how much will be spent on offsets and project development. National media last year estimated the total costs to be refunded at around A$200 million, which if correct would leave some A$100 million for projects and carbon credits.

Max Spedding, CEO of ALOA, said he expected only a moderate amount of carbon credits to be bought, but that they would be almost exclusively UN offsets because the government was already snapping up most domestic credits..

“In Australia there are virtually none available, the ERF is buying them,” he told Carbon Pulse.

Early in the negotiations, the industry offered to buy UN-issued CERs worth around A$10-20 million and transfer those to the government’s account. At current prices that would buy around 20-40 million CERs, which the government could use towards its Kyoto target for the 2008-2012 period.

This potentially new source of CER demand would barely dent the CER market’s global oversupply of hundreds of millions of units, but represents over half of remaining annual demand in the EU ETS, where companies have almost exhausted their quotas through 2020 and are able to buy 17-20 million CERs a year until then, according to analysts.

The normally moribund secondary CER market has seen turnover climb over the last two sessions, as Dec-15 CER futures have risen 9% or 4 cents on ICE Futures Europe to a two-month high of €0.47.

KYOTO BACKDOOR

By transferring the CERs to the government’s account, Australia would be able to carry over a bigger surplus of AAUs into the Kyoto Protocol’s second commitment period, significantly narrowing the gap to its 2020 target, which is currently estimated at 136 million tonnes of CO2e,

“This may be an effective back-door if the government is unclear how it will achieve its second period commitment without investing any additional funding,” said Bret Harper, an analyst with Reputex.

By Stian Reklev – stian@carbon-pulse.com

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