At the COP29 conference in Baku, Azerbaijan, a supervisory body approved the framework ahead of the formal meeting raising doubts over its long-term effectiveness.
The concern is governance but there is no doubting global compliance demand, with CORE Markets figures showing global demand at $US100bn ($155bn) compared to the $1bn Australian voluntary market.
The Article 6 rules are proposed to govern international trade in carbon credits in a way that will fast-forward emissions reduction in hard-to-abate industries and developing countries.
The move comes as the price of Australian Carbon Credit Units is rising fast on fears of supply shortages as the big emitters are now forced to buy credits if they cannot cut output, under the Safeguard rules that demand annual emission reductions from next year.
There are also delays in regulatory approval of new methods to earn credits which is creating perceived pending supply shortages.
The delays are caused by regulatory timidity.
The ACCU price has risen 15 per cent to $41.10 in 10 days with the safeguard policy to ramp up in February next year, with demand to increase ahead of the 2027-28 years.
The Clean Energy Regulator on Friday released draft standards for the new environmental planting (planting new trees) method which is a welcome step forward amid more delays in approving a new human-induced regeneration (HIR) standard which rewards owners for removing obstacles to encourage new growth.
The starting point is the demonstrated need to slow global warming.
Ryzo chief Philip Mulvey noted in an interview that “increasing soil organic matter and vegetative cover is equally if not more important than reducing emissions as doing so addresses both the heat source and the blanket”. Mulvey added: “Vegetative cover and increased soil organic matter together both sink atmospheric C02, but also reduce the heat and return the small water cycle.”
Critics say carbon market offsets are just get-out-of-jail-free tickets for big emitters who can pump out more fuel so long as they plant a few trees down the road. They are also pushing for better governance of the methods.
Climate Change Minister Chris Bowen recently dropped plans for a carbon offsets scheme working with Fiji and PNG, known as the Indo Pacific Carbon Offsets Scheme.
Instead the roughly $100m committed for the scheme will be redirected to direct investment in electricity grid transitions.
The move is cited by critics as an acknowledgment from Bowen that offsets are not the best route to reducing climate change, but proponents argue a multi-pronged approach using all avenues is best.
Everyone wants maximum integrity in the market which is measured in part by the method in use actually adding to the carbon capture and doing so on a permanent basis.
Still, proponents welcomed the Article 6.4 move as a landmark breakthrough that will save developing countries $US250bn and fast-forward emission reductions.
The UN’s Simon Stiell said: “The mechanism presents an opportunity for the private sector to invest and participate in the development and dissemination of clean technologies which are critical to achieving carbon neutrality by mid century.”
Critics said it was concerning after failing to reach an agreement over the past three years that this one was made behind closed doors before the COP29 conference started.
Some say it appeared to be fast-forwarded in the wake of Donald Trump’s re-election before he had a chance to torpedo the international climate body. He has in the past questioned climate science and multilateral forums when they impinge on the US.
Sydney University’s Megan Evans said: “I’m concerned that this agreement will effectively supercharge the problems we already see in carbon markets, and lead to a lot of money being made by traders and intermediaries, little of that money actually supporting local communities, and little (if any) emissions actually being reduced – ultimately leading to worsened climate change.”
There are myriad examples in Australia where that is not the case and supporters worry some poor projects are damning the rest, which conform to audited standards and provide demonstrated support to local communities. The better companies such as the big miners and Orica are also adopting multipronged approaches actually cutting emissions through new technology and offsetting through innovative funds like Tiverton and Silva Capital, which are ticking the three boxes – cutting carbon, boosting nature diversity and boosting the local community through farm income.
Targeted planting increases nature diversity while allowing the farmer to run cattle or sheep on the land, as do soil carbon projects.
The aim is to integrate farming with nature repair through better soil management
Given the expected increase in the price of ACCUs it makes sense for the likes of Rio to invest at the developmental level to meet its obligations and earn ACCUs before the price hits $100.
It has an internal team to assess potential projects backed by external auditors and its 15 per cent stake in South Australian project developer AI Carbon.
At your service
Sanjeev Gandhi took the reins at Orica nearly four years ago and hit the growth button on the company’s longstanding “beyond blasting” strategy.
Last year he completed the bulk of the necessary acquisitions and now it gets down to showing the company can leverage its domination of the global explosives business into a full-service mining services company.
In two deals worth more than $1.5bn he expanded his cyanide business used to process gold through the $1bn US Cyanco deal, having earlier spent a little over $500m to extend its mine monitoring technology to civil engineering with Canada-based Terra.
The plan is Gandhi now helps clients from mine to mill, advising where to mine, how to blast and process the output, in much the same way Haliburton holds the hands of oil and gas majors.
This year’s results show Gandhi has some work to do, with the chemicals and digital divisions accounting for just 16 per cent of earnings last year, well short of the targeted 50 per cent, matching the explosives contribution.
The good news is both last year’s deals were in the US, which has cheaper energy and perhaps upside through Trump.
Gandhi is well down the track on his goal to slash carbon emissions, with scope one and two emissions down 43 per cent from 2021 levels thanks to new technology at his Kooragang Island and Yarwun ammonium plants.
This means he has already earned valuable safeguard credits.
But Origin’s Frank Calabria dropped the ball on plans to develop a joint venture hydrogen hub at Kooragang, even before the recipients of the federal government’s hydrogen subsidies are known.
Gandhi says he has been flooded with offers to replace Origin and has set a 12-month deadline on the project to launch before moving on.
Kooragang is the ideal hydrogen site given Orica provides the raw material and is the base customer, plus any surplus is easily shipped through the Port of Newcastle.
Orica has a mixed history on acquisitions, which along with some concerns on increases in depreciation saw the company’s stock price ease a touch on this week’s profit announcement.
This is despite expectations in the market of double-digit earnings growth.
The backdoor approval to the long sought agreement for international carbon trades has again raised concerns over the use of carbon markets to reduce emissions in line with international treaties.