Carbon farming: Global players rush to snap up stake in Australia

Climate Friendly’s Skye Glenday, left, with Georgina Varley of Adamantem Capital. Picture: John Feder/The Australian.

On Thursday, global Japanese trading and investment business Mitsui snapped up a 33 per cent stake in Climate Friendly, one of Australia’s top carbon farming project developers.

In March 2021 private equity fund Adamantem Capital took a majority stake in Climate Friendly. It has sold down to Mitsui but retains a stake of over 50 per cent.

Mitsui’s move is the latest in a strategic land grab in the carbon farming market, which is growing fast despite the government’s shock intervention in March which saw the price of carbon credit units – ACCUs – plummet.

Adamantem director Georgina Varley says the long-term fundamentals of the sector remain strong and she has fielded a lot of inbound interest in the business.

“We have just seen such an increase in interest in the sector of the last year. Almost 50 of the top ASX 200 companies announced net zero targets by 2050 or earlier. There are not that many businesses with the depth of capability and breadth of experience of Climate Friendly,” she says.

Climate Friendly chief executive Skye Glenday negotiated the Adamantem investment directly with Varley. Since then she has hired over 20 people and wants to scale up carbon abatement from 20 million tonnes in 2020 to 100 million by 2025.

With another 5 million tonnes reached to date in newly issued abatement, Glenday admits the 2025 target is ambitious. But she says that is deliberate and investment from new capital partner Mitsui will accelerate the work.

“There are just over 800 land-based carbon farming projects in Australia but there are about 77,000 agricultural properties, so only 1 per cent of land managers are participating at this point,” she says.

Climate Friendly partners with farmers and Indigenous and conservation groups to create carbon offsets that are certified as ACCUs. The company takes the upfront investment risk to get the project live. The landholders then receive and directly manage the majority of the ACCUs. Climate Friendly typically receives a commission in ACCUs.

Mitsui’s investment follows a move by Mitsubishi to buy into Australian Integrated Carbon last year. Mitsui and Mitsubishi are both invested in North West Shelf LNG. Mitsui’s other group investments include coal and steel in Australia and its approach to Climate Friendly through its Next Generation Energy Division was all about ESG.

“They have a highly credible plan to reduce global operational emissions by half by 2030 and net zero by 2050. That does involve a lot of measures to reduce their emissions footprint and offset where needed. That was a careful consideration that we have that alignment,” Glenday says.

Any purchasing of carbon credits by Mitsui through Carbon Friendly is at arm’s length.

“Obviously they may be interested in offering purchase agreements to our clients, but all our partners own our carbon projects,” she says.

Sitting in private equity, Georgina Varley sees growing interest from strategic investors already active in carbon markets globally. “Australia is an attractive place to invest with a well-developed and robust land-based carbon methodology and system,” she says.

Even so, carbon farming has its critics, over transparency and accountability. Varley and Glenday both see a step change early next year.

Climate Friendly is working with the federal government on a world-first regulated whole-of-farm method for carbon offsets – one that aligns carbon farming accounting with how vegetation, soil and carbon emissions are ­managed.

“We expect that to enable thousands more land managers to participate and up to 2.5 billion tonnes of abatement over a 10 year period once that method is put in place,” says Glenday.

Carbon farming has had long-running bipartisan support. However that did not stop the government intervening in the carbon offset market in early March, causing a big drop in the value of ACCUs.

Through its Emissions Reduction Fund the government bought ACCUs from businesses and landowners at a fixed price to help kick-start the carbon offset market. In March, without consultation, it decided to allow these parties to get out of their contracts for an exit fee. At the time the government ACCU price was around $12 a tonne. The open ACCU market had been over $50 in February. The sudden release of supply caused the market to plunge. The price today is closer to $30.

Fortunately, this event is unlikely to be repeated. The government was one of the primary buyers in the overall market, which is getting bigger by the day.

“What is really important for us is having a stable market that provides certainty for all participants so they can really invest for the long term,” says Glenday. “These are 25-year projects and that will enable land managers to get involved and deliver emissions reductions on the ground and have new diversified sources of income.”