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Trading Carbon : December - January 2011
surrender Certified Emission Reductions (CERs) and other eligible international credits to cover up to a maximum of 50 percent of their annual emissions liabilities. It is expected that demand for compliance ACCUs will significantly outstrip supply. Australia's Department of Climate Change and Energy Efficiency (DCCEE) estimates abatement from compliance CFI projects in 2020, on a non- cumulative basis, of between 4.7 million tonnes (Mt) of CO2e and 15.6 Mt of CO2e. The majority of compliance ACCUs are expected to come from forestry and landfill gas projects. The DCCEE predicts these types of projects will respectively generate up to 6 million and 3.5 million compliance ACCUs a year in 2020. Domestic demand for voluntary ACCUs will be driven largely by a government fund set up to purchase such credits. The A$250 million fund will purchase voluntary ACCUs over six years starting in 2012. Again, the supply of credits is likely to be limited. The DCCEE estimates abatement from voluntary CFI projects in 2020, on a non-cumulative basis, of between 1 Mt of CO2e and 6 Mt of CO2e. Revegetation projects are expected to generate the lion's share of voluntary ACCUs, with projects of this type creating up to 5 million credits a year in 2020. There is a much greater degree of uncertainty for voluntary CFI project abatement and sequestration, due in large part to the uncertainty in the amount of revegetation activity on non-Kyoto lands. The CFI and its methodologies are underpinned by a number of concepts that are common to all robust project- based offset crediting mechanisms. CFI projects are required to operate under an approved methodology. Methodologies detail the parameters for particular project types and set out areas, baselines and ongoing monitoring requirements. Robust monitoring, reporting and verification processes are required to ensure that real and additional emissions reductions have occurred. The concept of conservatism applies to all CFI projects. Conservative assumptions, numerical values and procedures are to be used to ensure that abatement or sequestration claims are not overestimated. And, as always, the requirement that emissions abatement or sequestration be additional to "business-as-usual" emissions is critical. The CFI proposes a simplified form to test additionality that is, in part, satisfied if a project type is on a so-called "positive list". The CFI also sets out a "negative list". Where there is a risk that a certain type of CFI project may have an adverse impact on matters such as water, the environment and access to agricultural land, they are excluded. The concept of permanence is of unique importance to sequestration projects. Sequestration is considered permanent under the CFI if it is guaranteed for at least 100 years. Consequently, lands used for sequestration projects will have ongoing obligations and may incur potential liabilities. l This article is based on "Implementing the Carbon Farming Initiative (CFI) from a market perspective: A guide for business" published by the Carbon Market Institute. For more information please visit www.carbonmarketinstitute.org Lloyd Vas is markets and research manager at the Carbon Market Institute in Melbourne Email: firstname.lastname@example.org 31 AUSTRALIA farms. The resultant compliance ACCUs are eligible as units of surrender to meet the obligations of Australian entities covered by the carbon pricing mechanism. The initial three-year fixed price period provides a degree of flexibility for liable entities to utilise compliance ACCUs for up to a maximum of 5 percent of their total annual liability. In the flexible price period, from July 2015 onwards, this quantitative restriction is lifted and liable entities are free to use compliance ACCUs to cover the entire annual liability. Voluntary ACCUs will be issued to project activities with associated emissions that fall outside of Australia's Kyoto emissions reporting inventory. Voluntary methodologies cover projects that aim to increase the carbon content in soils, sequester carbon in shrubbery or lands that fall short of the definition of a forest, and also cover the use of biochar to enrich soils. Voluntary ACCUs will be eligible for use in the National Carbon Offset Standard (NCOS), Australia's voluntary carbon neutral accounting framework. In addition to use in the Australian market, compliance ACCUs may be eligible for use in other international markets, such as the EU ETS or New Zealand ETS, should those markets decide to accept them. Likewise, voluntary ACCUs can also be sold into the international voluntary market. While demand for CFI credits will come from both domestic and international markets, it is likely that short to medium term demand will be primarily driven by the requirements of the Australian market. From the start of the flexible price period, it is likely that there will be a strong positive correlation between the international carbon price and the price of compliance ACCUs. From then on, the Australian ETS will be linked to international offset markets, such as the Clean Development Mechanism (CDM), and liable entities will be able to REUTERS/DAVID GRAY Dec 2011/Jan 2012