April 2022 - WA Carbon Connections

This month

• Carbon credits reclassified as agricultural income

• Some background on the fall in the ACCU price

• Government carbon voucher program proved popular

• Carbon West project news

First, the prices being paid for carbon credits

Carbon credits reclassified as agricultural income

The Australian Taxation Office has recently given clarification on how carbon credits are treated for taxation/accounting purposes... and the news seems pretty good.   As always, we advise our clients to engage an accountant for any specific information on this stuff, but... it seems as though the change announced last month means that carbon credits, if sold, will be considered agricultural income, thus being part of the ATO’s seven-year averaging mechanism for primary producers. 

What’s going on with the carbon price?

We’ll preface this by saying that we do not hold an Australian Financial Services License, so the following should not be considered financial advice. If you are seeking financial advice on ACCUs please contact someone who does hold an AFSL.

Now, the adage ‘what goes up must come down’ has rung true, again, for the price of Australian Carbon Credit Units over the past month.  From $50.25 when our last newsletter went out at the start of March, down to $30.50 on 6/4/2022.  That sinking feeling hit when the Federal Government made a surprising decision, without industry consultation (which our carbon industry body, The Carbon Market Institute, is very annoyed about) on March 4.   The agency charged with adminisering the Emissions Reduction Fund, the Clean Energy Regulator, announced: “Current holders of fixed delivery contracts will now be able to pay an exit fee to be released from fixed delivery obligations to the Commonwealth”.

We’re thinking farmers could relate to this in an analogy to having held a fixed price contract for delivering canola this past season.   If a farmers signed a contract with a buyer to deliver 1000t of canola at $700/t, that contract would have been a costly error.   They can only wish they’d signed that contract with the Australian Government instead of a grain buyer.  If so, they could’ve sold their canola for $1000/t and paid the grain buyer the $700K.   Would anyone expect their grain buyer to be that magnanimous?  I doubt it.

Anyway... essentially that means a huge amount of ACCUs which were not available to the market when the fixed delivery contracts were held by the government, may soon be released to the market if the contract holders come up with the cash to buy the contracted credits at the fixed contract price (ie a lot less than the current market price).  Given that a lot of ‘big’ entities hold most of those fixed delivery contracts, it seems fairly likely that millions more ACCUs will soon be available to private sector buyers than was expected before the shock announcement on March 4.  Supply and demand levels determine market prices, of course, so the fall in the ACCU price is no surprise.  For a more detailed article on this decision read this CER news item.

However, the longer-term trend in the ACCU price has not altered significantly, despite the frenzied rise of late 2021/early 2022 and subsequent fall after March 4.  Even the European carbon price fell a bit when Russia invaded the Ukraine, though both the EU price and the ACCU price have recovered slightly from the low points. The IPCC’s latest report confirms that our carbon/greenhouse gas challenge is far from over. Our hope is that the IPPC report will spur a sustained rise in the price of emissions offsetting instruments (ie carbon credits).

Huge response to WA State Government ‘carbon advice’ voucher program

The offer of $10,000 vouchers to landholders wanting to access advice on carbon farming opportunities and assistance with developing a carbon plan and/or project has attracted lots of interest.  When applications closed for the program on April 1, it seemed obvious that many people saw the voucher offer as a good excuse to get more information on carbon.  Let’s hope there’s some good news for applicants in coming weeks.

Carbon West’s latest news

Our biggest development of the past months has been the commissioning and deployment of a soil core sample collection rig here in WA.  It’s been a big step forward in ensuring ERF-compliant soil sampling services are available to our clients running an ERF soil carbon project in this State. You can check out Jen’s post on LinkedIn here.  

Quote of the day:

“Finding the right answer begins with asking the right question.”

Asking the question of the right person/people could well be added to this quote.  Finding out how the carbon industry may affect the future of your business should only be asked of people who fully understand the industry’s history, drivers, trends and predictions. Carbon West is focussed on ensuring landholders engage in the carbon industry only when they have all the information they need to make good decisions.  We are actively involved in the development of Australia’s carbon industry, up-to-date with changes and opportunities as they arise and proudly independent of any vested interests in the fast-growing carbon sector.