Australian carbon offset prices hit record high in polluters' spree

Vapour pours from a steel mill chimney in the industrial town of Port Kembla
Vapour pours from a steel mill chimney in the industrial town of Port Kembla, about 80 km (50 miles) south of Sydney July 7, 2011. REUTERS/Tim Wimborne
  • Carbon offset price jumps to record high of A$29.50
  • Anglo American needs offsets for rising methane emissions
  • Australian offset price trails EU carbon price by far
  • Demand seen rising in corporate net zero scramble

MELBOURNE, Oct 8 (Reuters) - Australia's carbon offset prices have jumped 75% to a record high this year in a buying spree by major polluters who need offsets after exceeding emissions levels set by the government.

The unexpected surge in demand to meet a February regulatory deadline amid a temporary shortage of credits has driven prices higher. They could spike even further if Australia bows to international pressure to tighten its emissions reduction pledge for 2030 ahead of a UN climate summit which starts on Oct. 31.

Australian Carbon Credit Unit (ACCU) prices hit A$29.50 ($21.51) a tonne this week, up from A$16.52 at the start of the year, data from research firm Reputex and Jarden showed.

Australia's conservative government is also facing global pressure to set a net zero emissions target for 2050 ahead of the Glasgow climate summit, which would impact the offset market over a longer term.

"There's unanticipated demand creating a scramble for credits," said Reputex's director of research, Bret Harper.

Major miners like Anglo American (AAL.L) and metal processors like Alcoa's (AA.N) Portland aluminium smelter, which have been emitting above baselines set under Australia's emissions "safeguard mechanism", have had to buy ACCUs to surrender to the government to offset their excesses.

Anglo American's emissions have climbed as it digs deeper underground into coal seams that contain more methane. It captures around 65% of the methane produced at its mine and uses it to generate electricity, and is also pursuing new technology to meet a goal of net zero by 2040, a company spokesperson said.

"Where we have exceeded baselines due to geological or operational issues, and in ensuring the safety of our people, we have proactively purchased ACCUs as offsets, although under multi-year averaging arrangements, we may not require all of them," the spokesperson said in emailed comments.

The Clean Energy Regulator, which issues ACCUs, said it expects to issue a record 17 million ACCUs this year, representing 17 million tonnes of carbon emissions, up from 16 million last year.

While there is a shortage now, ACCU supply is set to grow as carbon brokers create more offsets by teaming up with farmers for reforestation, avoided deforestation and soil carbon projects. The government last week also approved carbon capture and storage projects to generate ACCUs. read more

The National Farmers Federation (NFF), though, says farmers should be careful about tying up land in carbon sequestration projects when carbon offset prices are so low in Australia compared to elsewhere in the world and they have to split proceeds with brokers and developers.

"While we're pro-choice, we don't want the farm sector to give up land for everyone else who's a carbon emitter," said Warwick Ragg, the NFF's general manager for natural resource management.

European Union (EU) carbon prices have soared this year to more than 60 euros ($69.39) a tonne, more than triple the offsets in Australia, spurred by the EU's new target to cut carbon emissions by 55% from 1990 levels by 2030.

Harper said demand for Australia's carbon offsets will rise over the long run, whether or not the government sets a net zero target, as major companies with their own carbon neutral targets find there is limited technology to meet them.

"Demand for these credits just keeps going up and up and up as more entities realise what it's going to take to get to net zero. I think demand will do nothing but increase broadly," Harper said.

($1 = 0.8647 euros)

($1 = 1.3712 Australian dollars)

($1 = 6.4496 yuan)

Reporting by Sonali Paul; Editing by Tom Hogue

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