Australia's issuance of carbon credits for soil storage projects is expected to continue rising in 2024 following a jump last year, with an uptick expected in registration of reforestation projects ahead of the expiry of the method in September, said Carl Binning, executive general manager, Clean Energy Regulator.
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A total of 253,009 Australian carbon credit units, or ACCUs, were issued for soil storage in 2023, a strong jump compared with less than 2,000 before 2023.
Binning also highlighted the rate of registration increases for popular methods that approach their expiry under Australia's legislative rules.
"We certainly saw that with the HIR [Human-Induced Regeneration] method last year and I would expect there to be a similar uptick in environmental plantings," he said.
HIR audits
HIR projects involve storing carbon by regenerating native forests through activities such as unmanaged livestock grazing, feral animal activity and chemical destruction of regrowth.
The method expired in September 2023 and has accounted for nearly 20% of total registrations for ACCU projects as of March 3.
A government-backed independent review of the ACCU program in 2023 largely upheld the integrity of the HIR method but recommended more data collection to establish causation between the project activities and the growth of vegetation.
Following the recommendations, CER initiated audits for 33 HIR projects and is yet to issue ACCUs to nearly 20 of those due to insufficient data.
"I suspect what we're observing here is just a few teething issues as we put in place the additional arrangements," Binning said, adding that project developers were adjusting to the new reporting requirements.
The process is expected to speed up and will increase the regulator's ability to issue ACCUs ahead of the audits based on higher quality of data provided, according to Binning.
"I am satisfied that we now have in place really robust methods for ensuring that when certificates are issued, they reflect real sequestration on the ground," he said.
Supply security
With the expiry of older methods and their alternatives still in stage of consultation, market sources have expressed concerns about a potential tightness in supply in coming years.
"I would acknowledge that with the sunsetting of HIR and environmental plantings, on the vegetation side there is some change ahead of us that needs to be carefully managed, but there are a broad range of methods and so I certainly don't expect registrations to halt," he said.
Binning added that nearly 30 million ACCUs were currently held by participants and that would keep the market well supplied.
"At the end of the decade, we certainly expect the market will tighten somewhat," he said, anticipating a significant and sustained increase in demand for ACCUs.
Digital infrastructure
CER was improving its online systems to support the application for credits, submission of reports and providing easier access to the regulator's assessors, Binning said.
The regulator is also in the advanced stages of planning a transition to a new registry that will replace the Australian National Registry of Emissions Units, or ANREU, the national registry that supports the ACCU market.
"One of the things with the new platform we aspire to do is to ensure that it is able to service a variety of trading platforms more effectively and efficiently," Binning said.
CER is also set to launch a consultation paper with the Australian Securities Exchange in the first half of 2024 that will discuss issues around creating a trading platform for ACCUs.
Market participants had told S&P Global earlier regarding certain delays in opening ANREU accounts for onboarding ACCU trading clients.
CER has recently introduced several streamlining measures to reduce processing times and applicant burden when applying to open an ANREU account, the regulator said in a statement.
"These streamlining measures have resulted in a considerable decrease in the application processing time for opening an ANREU account, which has fallen to less than six weeks in 2023/24, and is expected to continue to decline into the future," according to the emailed statement.
Safeguard Mechanism
Under the reformed Safeguard Mechanism, the regulator is also in the process of receiving requests for new emission intensities that will help set baselines. The baselines will fall by 4.9% every year starting fiscal year 2023-24 (July-June).
These baselines will be calculated either based on the individual facilities or the average for each industry and process.
Businesses that would use facility-based baselines would not see a significant change, Binning said.
"For those that are using other baseline methods, they may experience a more significant adjustment. We expect the headroom under the mechanism to be significantly reduced through the resetting of baselines," Binning said.
The companies that emit above the baselines will have to surrender ACCUs, while those with lower emissions will be issued a new type of credit called Safeguard Mechanism Credit, or SMC.
CER currently has no forecast on the number of SMCs that would be issued in 2025.
"We'll have a better sense of that once the energy intensity determinations have been finalized," Binning said.