Australia has a new sunrise industry in prospect, one that can bring enormous benefits to regional Australia, including many regions that are already in the midst of an energy transition.
In this report, Carbon Credits: Australia’s Next Big Sunrise Industry, we explain how Australia enjoys a comparative advantage in the removal of carbon over smaller, more densely populated countries.
Australia’s advantage in carbon removal and storage
Australia’s vast tracts of land, extensive coastline and low population density bestow on the continent a natural comparative advantage in carbon removal over smaller, more densely populated countries. KPMG estimates that with current and foreseeable technologies Australia could have long-term carbon removal, capture and sequestration opportunities of up to 100 million tonnes per annum by 2050, which is around one fifth of current Australian emissions.
Further, Australia’s relatively well-developed institutional framework administered by the Clean Energy Regulator offers a high degree of integrity in its carbon reduction projects, which will be a competitive advantage in this emerging market. Of course, there will always be room for improvement in methodologies and measurement associated with Australian Carbon Credit Units (ACCUs) and this will remain an ongoing project.
KPMG has found that up to three-quarters of global companies have committed to carbon targets. Many of these companies, including KPMG Australia, will be interested in purchasing ACCUs or other carbon units, offering further opportunities for Australia in carbon reduction. This prospectively huge private sector market for carbon credits would supplement or even exceed the value of government-to-government markets.
Properly regulated ACCUs can be expected to command a price premium over low-integrity alternatives, whose purchase by companies committing to zero net emissions can give rise to accusations of greenwashing their own carbon emissions.
Indeed, the private sector is demonstrating a willingness to pay a further premium for carbon reduction activities, with associated co-benefits, that also contribute to their other ESG goals such as positive biodiversity and socio-economic outcomes. A good example is the generation of ACCUs through savanna fire management by Indigenous rangers in northern and central Australia, which command a premium price.
Income generation through carbon removal
Carbon removal activities earning ACCUs, such as forest regeneration, plantation development and the storage of carbon in soil, offer new income-earning opportunities for Australian farmers, Indigenous communities and country towns, supplementing their incomes from more conventional activities. Our opportunities for geological sequestration and ‘blue carbon offsets’ (marine carbon sequestration) are also adjacent to many of Australia’s regional and Indigenous communities. Some of these are in the midst of the energy transition, and these sunrise opportunities offer valuable long-term job opportunities.
However, the generation of carbon credits should not be used as an easy way out for Australia to reduce its direct emissions. Carbon credits should be seen as a complement to strong decarbonisation efforts and as a way to help meet science-based climate objectives at least cost.
Businesses, particularly those in sectors where certain emissions abatement is difficult to achieve, need to understand and strategically position within this rapidly growing market.