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

emissions with offset projectsemissions with offset projects

The ‘transaction costs’ challenge1. 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 1 000 tonnes of CO2-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

internationalvoluntary

market

domesticmandatory

market

internationalmandatory

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

scheme start date allow offset creation? Price, t CO2-e (Jan. 2011)

Kyoto Protocol 2008 yes (CDM/JI) ~ €11.50 (A$15.50)

EU ETS 2005 limited (CDM/JI) ~ €15 (A$20)

NZ ETS 2008 limited (some CDM/JI) NZ$12.50 (A$9.25)

RGGI 2009 yes (scheme only) ~ US$2; capped at US$10

Alberta 2007 yes (scheme only) C$15 (capped)

MGRA tba limited (US & Canada only) n/a

WCI 2012 limited (to be announced) n/a

AB 32 2012 yes (REDD) n/a

MGRA: Midwestern greenhouse gas reduction accordWCI: Western Climate initiative AB 23: Californian Assembly Bill 32 (Global Warming Solutions Act)

CDM: Clean Development MechanismJI: Joint ImplementationREDD: Reducing Emissions fr Deforest. & Degrad.

Surplus of Kyoto units in the EU and Australia, 2009

Demand for carbon offsets

domestic voluntary

internationalvoluntary

domesticmandatory

internationalmandatory

Demand for carbon offsets

domestic voluntary

internationalvoluntary

domesticmandatory

internationalmandatory

Demand for carbon offsets

domestic voluntary

internationalvoluntary

domesticmandatory

internationalmandatory

Demand for carbon offsets

domestic voluntary

internationalvoluntary

domesticmandatory

internationalmandatory

Demand for carbon offsets

domestic voluntary

internationalvoluntary

domesticmandatory

internationalmandatory

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