Carbon reduction price opens door to $24bn opportunity

Illustration: John Spooner

Telstra’s Andy Penn last week complained about the lack of carbon abatement products in Australia, but the good news is international and local pricing is increasing and, with the right policies, a $24bn market opportunity may open.

The Carbon Market Institute released a statement noting the EC price for reducing a tonne of carbon had hit $47 a tonne, compared to $16 a tonne in Australia.

This is the money someone is prepared to pay to reduce a tonne of carbon by growing a forest among other projects, like the Aurukun Savanna Burning Project, which uses modern equipment to burn the grass early in the season to reduce carbon emissions.

Savanna burning contributes to 3 per cent of Australia’s annual emissions, in part because it is done late in the season. Traditional owners burn early in the season.

Qantas is another big player in the offset market, investing in Australia and offshore, including in a sugar cane reforestation program in Cairns that uses the sugarcane fertiliser to grow the forest, rather than letting it leak to the coral reefs and feed the crown of thorns starfish pest.

The Carbon Market Institute comprises some leading companies including Westpac, ANZ, Wesfarmers, Telstra, Qantas, BHP and Shell. Its aim is to build knowledge, capacity and opportunities towards zero net emissions in Australia. The aim is to do so led by business replacing government which drives the local carbon market through reverse auctions run by the Clean Energy Regulator.

Government can help, ­according to institute boss John Connor, by lowering the present carbon thresholds and opening the door to international trading.

The federal government runs reverse auctions for carbon reduction credits and there is a separate spot market price at $15.85 a tonne, which means companies will pay you that amount for every tonne of carbon you reduce.

The local price compares with $20.49 a tonne in China, $31.07 in New Zealand and $33.56 in South Korea.

Connor noted World Bank estimates say 22 per cent of carbon emissions are covered by 61 global trading schemes with a combined value of $US99.5bn ($143.5bn).

The industry in Australia, with the right policies, could generate up to 480 million tonnes of carbon abatement, up to $24bn in annual revenue and 21,000 direct and indirect jobs.

Farmers would expand their product range from cows to carbon-eating forests.

Rather than the government paying industry for carbon abatement, this should come from businesses driven by their own desire to reduce carbon because shareholders and customers are demanding action.

Ross Garnaut has argued “low-cost biological and geological sequestration of carbon wastes” is one of the great opportunities for Australian business.

The higher the price for carbon reduction, the more supply of offset products will hit the market.

Forestry already accounts for 42 per cent of carbon abatement products globally, but the value increases with projects like the Qantas-Cairns model or its solar panels to reward PNG residents who don’t burn their rainforests.

BlueScope in sights

The ACCC already has actions against BlueScope and former executive Jason Ellis alleging cartel behaviour, but given the steel maker is a domestic monopoly, more inquiries are being made.

The regulator has asked questions around the industry centring on Truecore, which is BlueScope’s building frame product that competes with timber and, of course, imported products.

One line of inquiry centres on bundled deals where you get discounts on the roughly $2000-a-tonne Colorbond roofing product if you buy Truecore.

There are no problems with bundled discounts, as long as their intent is not to kill competition.

Discounts are good and impeding competition is bad — and there can be a fine line between the two.

BlueScope, of course, has done its bit to impede competition by lodging a dumping complaint against both products.

It has claims for a small diameter product that competes with Truecore from China and Vietnam and for larger zinc-coated products from South Korea, Taiwan and Vietnam.

The aforementioned cartel case is due in court for a directions hearing in the Ellis matter later this month and BlueScope next month. The case alleges Ellis ­attempted to get suppliers to lift prices under the threat of dumping actions.

Cartel case overload

September 30 is the financial cliff facing Australian business and it is also the deadline for more than 30 authorisations applications before the renamed “Australian Cartel Co-operation Commission”.

The tongue-in-cheek title is in reference to the rush of co-operation authorisations filed to deal with COVID-19.

With a couple of notable exceptions, the ACCC has waved through the applications but now comes the task of working through the detail.

This month is the interim deadline for most of the applications before final decisions by Rod Sims’s team in September. The ACCC has again tended to grant interim authorisation pending final decisions in September.

In rare cases the applications were withdrawn when the ACCC confided they were unlikely to be granted and on others limitations are imposed, such as the health insurance funds that want freedom to talk about discounts due to bans on elective surgery.

Discounts should be the basis of competition.

There are a slew of obvious medical-related requests seeking clearance for talks with competitors to ensure medical equipment and services are available including between private and public hospitals.

Others have proved more problematic, like the Australia and New Zealand Gas Association, which wanted to co-ordinate supply to ensure there was enough medical oxygen available.

NSW Health confided that there was “limited benefit” from the agreement.

Given it is a major user, one can only assume this authorisation has a short lifespan.

The Minerals Council sought authorisation to ensure supplies arrived on time for its members, who range from BHP down.

Important as these companies are, speaking for a collective $150bn a year in exports, this one is also a stretch.

Agreements between small shopkeepers to negotiate with big landlords were approved at least in interim stages.

Authorisation is only granted for the co-operation and limited benefits are fine as long as they outweigh the detriments.

The merger pipeline has shrunk somewhat, so the competition team at the ACCC appears to be fully engaged on authorisation work.

Elsewhere, of course, there is more work on potential cartel cases and this month is also the deadline for the digital platforms code of conduct governing Google and Facebook.