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