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2

CO2e

Maryborough 03 -06-2014

Ben Keogh

Managing Director Australian Carbon Traders

AC

CU

-K-0

97

86

22

-88

91

88

29

2

AC

CU

-K-0

97

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AC

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Carbon Farming-trading and brokering in practice

THE CHALLENGEAnthropogenic Global Warming

home

Why Carbon Markets?• Climate change is a global

issue

• Requires a global response

• Global Policy Response is the Kyoto Protocol

– International Cap and Trade

• Countries commit to emissions targets

– Undertake domestic action

What are Carbon Markets?

• Carbon Markets are created by policy measures designed to

– reach internationally agreed GHG targets

– to direct investment to lowest cost abatement

• Political landscape and policy settings affect carbon markets

• Carbon Markets

• Trade Carbon Financial Instruments to satisfy voluntary or mandatory greenhouse gas emission targets

• are governed by standards governed by regulators

• standards set the rules for measuring, accounting and reporting on emissions and abatements (offsets)

• scheme regulators determine what credits are accepted to their scheme

International Agreements

Set national targets

Implement domestic

policy

Policy options

Actions must account towards international targets

• Option A - hit ‘em where it hurts– Increase the cost of carbon

intensive goods and services– Change behaviour– Let market decide least cost

abatement

• Option B – buy the carbon– Pay for sequestration and

abatement– Pick the least cost genuine

abatement

Direct Action Plan

• Government sets emissions target

• Government allocates funds to fund activities, using CO2e as the metric

• Companies and land managers bid project activities to government

• Government chooses which projects to purchase credits from

300

350

400

450

500

550

600

650

700

750

2000 2005 2010 2015 2020

MtCO2

-5%

+17%

% change

on 2000

level

Emissions

reduction

task in

2020

(MtCO2-e)

131431 Mt

Australia's emissions reduction task to 2020

Source: ERF Green Paper - Department of the Environment,Australia’s Abatement Task and 2013 Emissions Projections, 2013.

Direct Action Market

• No regulated demand -only government and voluntary buyers

• Reverse Auction Process– Benchmark price– Fewer larger auctions– Minimum bid size– Forward contracts– Flexible delivery– Guaranteed price

• Government Tender• Any other manner

deemed suitableVolume Purchased

Benchmark Price

Successful Bids Unsuccessful Bids

Pri

ce b

id f

or

abat

emen

t d

eliv

ery

Volume of abatement bid

A tale of two marketsMandatoryFit for purpose

– Issued and compliant with mandatory rulesPrice

– Must be a net financial benefit over paying penalty or buying allocated permits

Volume– Costs involved in due diligence the same for large or small

parcels - large parcels are required from trusted sources– Will pay significantly less for small parcels

VoluntaryFit for purpose

– Issued and compliant with target schemePrice

– Looking for value for moneyStory

– You must tell the story– Environmental/Social/Economic co-benefits

Volume– Volume can vary dramatically between retail and wholesale

markets– Volume impacts price

Vintage – Buyers often want to match year of emissions and offsets

Low risk– Purchasers pay more for less risk– Less likely to invest in start ups

Global Markets and linkages

Source Mapping Carbon Pricing Initiatives – Carbon Finance at the World Bank - Prepared by Ecofys 2013

How do trades occur?

Seller BuyerFunds Transfer

Sellers account

Buyers account

Credit RegistrySellers

accountBuyers

account

DocumentationPrice and

termsLegal

• Electronic certificates– represent 1 tonne of CO2e abated or sequestered

• Credits are issued by scheme regulators to projects through registries• Transfers occur within registries• Transactions governed by financial legislation

All aboard the money go round!

Buyer

$22

Broker

$1

Aggregator

$1

Verifier

$1

Monitoring and Reporting

$1

Project Manager or investor

$10

Project Owner or landholder

$8

Can

all

be

lan

dh

old

er C

an b

e o

ne

entity

Projects Require Scale• Self manager/Agency

– DIY - more paperwork/more benefit

• Carbon Pooling– Transfer carbon rights, obligations and %

of benefit

– Set and forget

• Agency - fee for service or %of benefit– Provide specialist knowledge

– Quicker and cheaper

• Aggregator– Bundle parcels from suppliers

– Market presence

– Create economies of scale - cheaper services

• Traders - buy and sell– Hold credits

– Build parcels

– factor in holding period to price

Project

Project

Project

Project

Scheme Obligations

regulatorAdministration/Expert Services/Project Oversight

credits

Aggregator

market

$credit

s

credits

Agency $

Agency/ Aggregation Model

Legal right to carry out project

Carbon Pool Manager

Project

Project

Project

Project

Scheme Obligations

regulator

market

credits

$

Carbon Pool Manager

credits

$

Scheme Obligations

Carbon Pooling Model

Why Brokers, Traders and others

• Carbon projects require specific and detailed knowledge of a range of disciplines

• Poolers and Aggregators bring economies of scale to multiple project owners

• Traders and Brokers keep secondary market active, aid in price discovery and market intelligence

• Current compliance buyers under the Carbon Tax – Fewer Contracts– Less due diligence (KYC)– Large parcels - 10k – 100k+

• ERF -– minimum bid size– Diversify risk across a portfolio - less risk for government– Traders hedge against make good policies

Step 1

Become a recognised

forest entity

Fit and proper

person test

Step 2

Methodology Approval

Apply an approved

methodology

Create a methodology

Multiple project

streams on farm

Step 3

Project Approval

Approved methodology and approved

project proponent

Supporting documentatio

n

Step 4

Reporting

Monitoring and

verification

Step 5

Crediting and trading

Credit issuance

Trading carbon

Step 6

Termination and transfer

Step 7

Compliance

Check project eligibility and

viability

Does a methodology exist

Is it in positive or negative list

Compare land uses / management

practices

Register as a eligible entity

Prepare documentation and

apply to be a registered offset

entity

And ANREU account

Submit documentation to CFI Administrator

Register Project

Maps, models, documentation

plans etc

Obtain notification of consent,

notification on title, conformity with

statuary

Submit project application to

Scheme Administrator

Monitor Report and Verify your

project

Monitor the abatement or

sequestration and emissions from your

project

Prepare report for CFI administrator (e.g. monitoring, models, data etc)

Have your reports verified by a third

party auditor

Create and Trade your

Credits

Apply for credit issuance from CFI

administrator

Receive credits and trade or hold

Maintain your carbon on site

(sequestration only)

Compliance, termination and

transfer

Trading Carbon Credits is at the end of a long process

ContactBen Keogh

Australian Carbon Traders

P.O Box 1020 Castlemaine Vic 3450

ph 0425 877 676

email ben.keogh@australiancarbontraders.com