Buyers of Human-Induced Regeneration carbon credits in Australia continue to place confidence in the integrity of the method and are willing to pay a premium over avoidance-based credits, said Skye Glenday and Josh Harris, co-CEOs of Climate Friendly, one of the biggest carbon project developers in Australia.
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Register NowHIR projects involve the generation of Australian carbon credit units via the storage of carbon by regenerating native forests through activities such as managed livestock grazing, control of feral animal activity and ending the chemical destruction of regrowth. The method expired in September 2023.
"We are seeing continuing confidence in those [HIR] ACCUs from the buyers that we and our project partners work with," Glenday said.
The Platts HIR ACCU price fell to a more than four-month low on March 27 after a new study from a group of academics claimed that most of the HIR projects included in the study failed to regenerate vegetation cover. Generic ACCU prices were assessed at A$34/mtCO2e ($22.36/mtCO2e) and HIR at A$34.25/mtCO2e on April 26, S&P Global Commodity Insights data showed.
"There have been multiple reviews into the integrity of the projects, including [those] led by the former chief scientist, professor Ian Chubb, and they have really demonstrated the strong integrity of those projects," Glenday said.
The government-backed independent review of the ACCU program, also called the Chubb review, in 2023 largely upheld the integrity of the HIR method but recommended more data collection to establish causation between project activities and the growth of vegetation.
"The regulator has implemented a comprehensive suite of reforms as recommended by the review, including audits on those projects prior to future issuances, and we are seeing continued resilience in the market around the trading of those ACCUs," Glenday added.
Premium from buyers
While the government and the carbon industry have strongly defended the method, the study impacted the spot price, with the Platts HIR ACCU premium over Platts Generic ACCUs narrowing to as low as zero on April 23 in the brokered spot market.
"We haven't seen in our interactions with the buyers we work with any discount on the HIR price, so they are still willing to pay a premium above the sort of Generic ACCU price," Harris said.
Climate Friendly is seeing a transition away from government purchasing, with a growing compliance market, from Safeguard Mechanism entities, along with continuing strong growth from voluntary buyers, Harris said.
"Among those compliance buyers generally, our experience is that there's a real preference for nature-based solutions, particularly from some of the early movers in the scheme," Harris said.
Platts, part of S&P Global, has reported direct trades for HIR ACCUs between project developers and buyers at a premium of A$1-A$8 over the last three weeks.
New methods
With the HIR method expiring in September 2023, the carbon market was awaiting the release of a new method, called Integrated Farm and Land Management, or IFLM, in 2024 to drive new registrations for natural regeneration-based projects.
The method also allows sequestration through other means such as environmental plantings and soil carbon.
However, the Department of Climate Change, Energy, the Environment and Water said earlier that the method is likely to be delayed as more consultation was required on the draft.
The department has been busy implementing Chubb review recommendations, with the additional workload resulting in delays in the co-design process, Glenday said, adding that the urgency to release a new method for environmental plantings has also added to delays.
"I think those delays are unfortunate but they (DCCEEW) have also emphasized their continued commitment to deliver the new method in 2024," Glenday said.
An expert workshop is planned in the coming weeks for inputs to DCCEEW and the Emissions Reduction Assurance Committee, or ERAC, as part of the co-design process, she said. ERAC is an independent committee that assesses and advises the government on ACCU methods.
The next step is for DCCEEW to provide ERAC with a draft method and supporting evidence, to be followed by public consultation on the exposure draft, and finally ministerial consideration based on a final ERAC recommendation, she added.
Regarding the new EP method, Glenday said it is expected to be released before the current version sunsets in September and is likely to be similar to the existing method.
DCCEEW initiated feedback on April 5 for the new EP method, with industry participants starting to make submissions.
"We think it will be relatively minor updates based on the experience of implementing the current method rather than any major reforms," Glenday said.
Future strategy
Glenday said Climate Friendly was continuing to work on projects despite a slowdown in IFLM and the upcoming expiry of the EP method.
"We are continuing to scale up land-based projects at the moment, whether that's preparing for IFLM, working through EP, plantations, or other land methods that are still available," she said.
Glenday also said that even if the new methods are finalized on schedule in 2024, it typically takes 18 months to develop a new project at the fastest timeline and hence there was an urgent need to generate more supply to meet Australia's climate targets.
"We are really looking forward to having the new methods to enable us to accelerate that," she said.