Australian companies could potentially gain a competitive edge in key export markets by packaging local carbon credits with their products, according to Carbon Market Institute chief executive Peter Castellas.
The arrangement would give exporters of commodities such as alumina and LNG an important new tool to stand out from their rivals, and could finance a major expansion of carbon abatement activity within Australia, Castellas told Footprint.
But the ability to "staple" credits to exports will depend on the design of new UN carbon rules, and on the Australian Government's ability to negotiate favourable bilateral arrangements with other governments in the region, he said.
Regional schemes
Undertakings made by countries in the lead-up to the Paris Agreement and the rise of carbon pricing schemes in the region have compelled exporters to change their thinking on carbon credits, Castellas said.
These international changes mean that, "irrespective of what our domestic policy is", Australian companies are part of global supply chains in which carbon emissions matter and where businesses that can offer some form of mitigation – such as a supply of carbon credits – have an advantage, he said.
To come to grips with the risks and opportunities, Australian exporters will need to understand carbon price flows through their supply chains and pay attention to how the Paris Agreement is distilled into specific rules on international cooperation, he said.
Demise of cheap CERs
Tracking Paris Agreement negotiations will be particularly important for two reasons, Castellas said.
Firstly, there won't be any new international projects approved from 2020 that can generate ultra-cheap carbon units known as CERs, so CERs will become increasingly scarce and their prices will likely rise, he said.
Secondly, the wording in article six of the Paris Agreement that is likely to lead to replacements for CERs is very open-ended, including its reference to "internationally transferred mitigation outcomes" (ITMOs), he said.
However, Castellas anticipates that the post-2020 rules on ITMOs will be broad enough to encompass and encourage bilateral arrangements on carbon abatement transfers, which will make bilateral agreements and market linkages an important part of cooperative efforts to cut emissions.
Different demand driver
If international and bilateral discussions pan out, Australian exporters could staple Australian carbon credits (ACCUs) to their exports, and their overseas customers could in turn use them to demonstrate that they have reduced their emissions, he said.
Export market customers could also potentially rely on them to help meet their own compliance obligations, he said.
"It's a completely different demand driver for domestic abatement," Castellas said.
"If we are on the front foot, in terms of the design of the market and the development of the bilateral arrangements that are going to emerge, it could be very beneficial for Australian companies because we have already invested in the design and the scaling [up] of our domestic offsets supply," he said.
Castellas also sees significant opportunities for Australia to help developing economies in the region to establish administrative arrangements for emissions management and offsetting, potentially in exchange for allowing the use of ACCUs within their countries.
Innovative thinking
Castellas said government officials and corporate executives should be closely involved in negotiations and discussions on international carbon transfers in order to maximise opportunities for Australian exporters and offset providers.
There also needs to be some "innovative thinking" by exporters and the offset sector to demonstrate how ACCUs could be bundled with exports, he said, adding that large exporters had shown "significant interest" in the concept.
The Carbon Market Institute will host an Asia-Pacific carbon market roundtable the day before its upcoming emissions summit to discuss some of these issues, Castellas said.
