What activities are covered by the CFI?
The CFI covers sequestration and reductions in emissions from sources that are not covered by the carbon price mechanism. To be eligible to receive ACCUs, activities must also be on the positive list, covered by an approved methodology and not on the negative list.
The CFI does not cover reductions in emissions from electricity or fuel use, even if these reductions are achieved in the agriculture sector. It does not cover waste emissions from abattoirs, wineries or other agricultural or food processing facilities. It does not cover reductions in emissions from waste that enters or would enter landfill after 1 July 2012.
The Australia’s Government will also buy some non-Kyoto ACCUs, using revenue collected as companies pay the carbon price. The $250 million CFI non-Kyoto Carbon Fund will be operational from July 2013. The Government will purchase non-Kyoto ACCUs via competitive tender. The price the Government will pay for non-Kyoto ACCUs will be no higher than the price of Kyoto ACCUs in the compliance market.
ACCUs do not have an expiry date, and can be banked or sold for future use.
Australia’s carbon price mechanism
Australia’s carbon price mechanism will start in July 2012 with a fixed carbon price of $23/tCO2-e, rising at 2.5% per year until 2014/15. This is known as the fixed price period.
In the fixed price period, businesses can use Kyoto or compliance ACCUs to offset up to 5% of their carbon price liabilities. Landfill operators can use Kyoto or compliance ACCUs to offset 100% of their carbon price liability.
In the flexible price period, which commences in 2015, the Australian Government will allocate and auction a fixed number of carbon permits and the carbon price will be set by the market.
From the start of the flexible price period, liable companies can meet up to half of their obligations using credible abatement from overseas. There is no limit on the use of Kyoto or compliance ACCUs in the flexible price period. To limit price spikes and plunges in the flexible price period, there will be a price ceiling and a price floor. Australia will have a price cap starting $20 higher than the expected international price, and a price floor starting at $15/tCO2-e.
What are CFI carbon credits worth?
Kyoto ACCUs
Companies with liabilities under the carbon price mechanism will buy CFI credits if doing so is more cost-effective than undertaking abatement within their own operations or meeting their obligations by paying the carbon price (in the fixed price period) or buying carbon credits (in the flexible price period).
This suggests that the value of ACCUs eligible to be used under the carbon price mechanism (see Australia’s carbon price mechanism, above) could be around $23 during the fixed price period. In the flexible price period the value of these credits is likely to be above $15/tCO2-e.
Voluntary market
In 2010, 131 million carbon credits were traded in the voluntary carbon market worldwide, 34% more than in 2009 (Peters-Stanley et al 2011). The prices of these credits ranged from US$0.10 to US$136.3/tCO2-e.
Pursuant to the said Handbook, several factors contribute to this variability, including the credibility of the offsets program, the integrity of offset credits and whether the project provided social or environmental co-benefits.