Last week's unexpected de-coupling from carbon farming contracts by the federal government has rocked investors who have spilled the price of an Australian Carbon Credit Unit by half.
In fact the government action will hurt treasury the most because government has, since the market's inception, been the dominant bidder in a reverse auction system which means the average unit price secured by our bureaucrats for 75 million tonnes of atmospheric carbon was just $12.
The self-governed hit will now see farmers previously stuck in low-value contracts apply to review their deal with Clean Energy Regulator's Emission Reduction Fund, so that they can chase more lucrative contracts options with the ERF, voluntary markets and elsewhere. Already this week Australian trade organisation officials and counterparts from Singapore met to discuss the procurement of ACCUs.
"It was the sensible thing to do," says carbon project developer Natalie Hicks, Rockhampton, Qld.
"The disparity between the spot and contract was too unstable. This move by government is painful for those involved, but it is better for the long-term because we now have an orderly process of contract revision."
The market as it stood last week was managed by one regulator - the government - for pretty much one player: itself.
"With the regulator calling the shots it is perceived as destabilising for everyone," Ms Hicks said, going on to suggest the next step in market evolution could be establishment of a carbon or natural capital exchange and "let the market mechanisms sort out price".
Natural capital manager at Armidale's Impact Ag Partners, Toby Grogan, said the shake-up would have eventually happened, "going forward", although the announcement came without warning.
"It will mean more private major players in this space and less government," he says. "This will be a major test for non-government demand, with investors still digesting the news.
"Farmers who contracted at $10 to $16/t have the opportunity to get a higher price and project developers win because their commission goes up."
To keep the market from overheating during this re-set, landholders with old contracts will have to apply to be released and then de-coupling will be staged, so as not to dump too much supply on a wobbly market.
Ms Hicks likens the ERF/CER process to be in transition to maturity and there will be growing pains of course. "In five years' time, the carbon market will have been through many iterations with new entrants, dynamic investment options and some obsolescence of old market processes and methods," she said.
As to going ahead with a carbon farming project, Mr Grogan says there is no reason to hesitate. "We wouldn't delay commencing a carbon project because we want the positive land management changes anyway," he said. "And if there is any change that leads to an increase in soil carbon then the farmer should seek to monetise that commodity."
Farmers pursuing a carbon trading project need not fear the market shake-up that has happened over the past week with prices for Australian Carbon Credit Units now trading at realistic levels and access to those credits by private investors more forthcoming, says carbon farming pioneer Stuart Austin, manager of Wilmot Cattle Co.
A portion of the outfit's Northern Tablelands properties are generating ACCUs for the regulated market while the balance are primed to provide diverse levels of natural capital to a eager carbon-offsets buyers.
"If some farmers have pre-sold their soil carbon for $15/t they will be better off under this new arrangement," he said. "This has created more freedom in the market so the world can figure out what an ACCU is really worth."
Carbon project developer Andrew Gatenby, CEO of CarbonLink at Gladstone, Qld, says the regulator's move to break old contracts certainly "didn't help with confidence but the spread between spot price and reality was always going to create problems.
"This was the least-worst outcome," he says, noting market predictions point to ACCUs returning to their peak once buyers digest a gutful of newly available supply.
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