(EnergyAsia, January 15 2013, Tuesday) — Without a national carbon price floor, companies would be reluctant to invest in Australia’s domestic carbon offset mechanism known as the Carbon Farming Initiative (CFI), predicts carbon consulting firm RepuTex.
Even with a floor price in place, the CFI is expected to deliver at most only five million tonnes of carbon offsets per year by 2020, less than a third of the government’s optimistic estimate of 15.1 million tonnes.
Should the floor price be removed, investment in new projects will further dry up, with pre-existing projects likely to be the main source of offset supply, said RepuTex.
“A key objective of the Australian carbon price floor is to underwrite demand for domestic Australian offsets such as those derived from the CFI, with supply of local credits to be bounded by the carbon price floor,” said RepuTex’s executive director, Hugh Grossman.
“Even with the compliance limit on the import of international emissions offsets known as CERs set at 50%, it is likely Australia’s CFI will be constrained by the low price of CERs. We estimate 4.6 million offsets per year will be available from the CFI in 2020, as low CER prices will provide cost effective abatement up to the 50% limit for CERs being used by liable entities to meet their total liability each year.
“Once we remove that price floor, the CFI will effectively be undercut by cheaper permits imported from Asian markets.”
Australia’s domestic abatement scheme is designed to facilitate the production of emissions reduction credits largely from the agriculture, forestry and waste management sectors.
From 2015, Australian firms will have the option of purchasing abatement credits from the Australian CFI or internationally.
Australia’s carbon price is fixed for the period 2012-15, with a floor price starting at A$15/tonne and rising with inflation currently planned to be in operation for the initial three years of the floating price period (2015-18).
The operation of this floor price would partly shield the Australian carbon market from international price pressures, with international carbon credits presently trading at around A$3.50. (US$1=A$0.96).
RepuTex estimates that by 2020, Australian firms will be required to purchase 155 million tonnes of emissions reductions annually. The Department of Climate Change and Energy Efficiency estimates around 10% (15.1 million tonnes) of these reductions will be supplied through the CFI.
However, RepuTex disputes this, predicting it will likely come under 3% (4.6 million tonnes).
If the removal of the floor price were to be accompanied by a tighter restriction on the volume of CERs imported into Australia, or a tie up with global carbon markets, RepuTex notes that the picture would drastically change for the domestic CFI market.