International market developments - Clean Energy Regulator€¦ · Web view2021. 4. 9. · I think the oil and gas sector is definitely really looking to make some significant moves

Transcript: International market developments

John Connor: Good afternoon carbon citizens and professionals. It’s a great pleasure to welcome you again here for our carbon conversations for the start of a special series that we are taking, looking at participating in Australia's carbon markets. I’m really pleased to pass on my thanks to the CMI members, national and state governments and the Clean Energy Regulator who are all assisting us with this series over the coming weeks.

I first want to welcome and pay respects to traditional elders from the country in which you are all meeting us here, pay respects to elders’ past, present, and emerging. And it’s also a special recognition of our Maori friends with Nigel Brunel here joining us from New Zealand, as well. So, without further ado, I’m going to be handing over the reins for this conversation to Gloria Karaiskos our Director of Climate Change who has been leading the development of this series. Gloria?

Gloria Karaiskos: Hi everyone, and welcome to our first seminar in this education series, where we take an in-depth look at carbon markets and the critical role they can play to support you in your organisation. First, to achieve your emission reduction goals, but also more broadly your overall carbon and sustainability strategy. As John mentioned, my name is Gloria Karaiskos and on behalf of CMI, we are very pleased to be able to deliver this Virtual Seminar Series to you. I’m excited about opportunity to connect with an even wider audience across the country and across the borders.

Normally, we would be bringing this to you on the road, travelling to most capital cities around Australia and connecting you with all sides of the market. From project developers, to expert market advisors, brokers, trainers, as well as the team from the Clean Energy Regulator. But, in this new world we find ourselves in, what better way to interact than via the virtual world? And we do wanted to be interactive, so please use this as an opportunity to ask questions via the Q&A box at any time throughout this seminar, and will do our best to answer them. Of course, you too can all chime in if you want to add a response to any comments that you see.

As you will see on the slides coming up in a moment, this seminar series over the coming weeks and months is really designed to cover a wide range of topics. Now we’re looking to deliver these to you to increase your knowledge of carbon markets both here and globally, explain how markets can be used to meet your corporate goals, and give you an overview of the current market dynamics and developments. We also wanted to highlight some of the key things you need to know when it comes to procurement and training strategies, and of course connect you to some of those key players in our industry so you can continue the conversation.

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Whether you are new to carbon markets or already deeply engaged, we hope this series will provide you with some new insights, for new information and resources, and importantly, some new contact to assist you in your market-related activities and engagement. As a precursor to this series together with the Clean Energy Regulator, we had a webinar earlier this year where we looked at the fundamentals of carbon markets.

This webinar is currently available both on our CMI marketplace, but also the SAR’s online market engagement and resources webpage. I’d really recommend it to anyone who came to get a better understanding of carbon markets and some of the fundamentals around Australia’s policies and schemes. So, it’s quite a bit of background to this series if you haven’t already seen it. Today, despite many borders closed and travel limited, we’re going to take things “international.” Our first seminar today is on international market developments. And we’re joined by three panelists today, each of whom will share their market perspectives and insights, after which we’ll move to a live Q&A to answer your questions. As mentioned, please use the Q&A box as when questions come to you, and will look to answer as many as possible following all presentations.

And now let’s hear from our first panelist, and also my wonderful colleague, Brad Kerin, the General Manager here at CMI, to give us an update on the international landscape and some key trends and developments in global markets. Welcome, Brad.

Brad Kerin: Thanks very much, Gloria! Good to be here. Let me just show you my screen. So I might start just by, I guess, checking in and saying that 2020 has been a rough year of bush fires, of COVID, and the human rights atrocities that have spurred the Black Lives Matter movement. But I did want to take a moment to reconnect us to why we’re here and having this conversation about climate change and carbon markets. The escalating climate crisis is, of course, the underlying concern here, but it’s really the Paris Agreement that is driving some of the economic change.

We’re all connected to this global agreement reached in 2015 because Australia is a signatory to the Paris Agreement and trades with other nations that are also signatories to the agreement. And we’re also feeling the effects of climate change and it behoves every one of us across local and business communities to find a way to manage climate risks to ourselves, to our descendants, but also to find the economic opportunities that help us drive up the ambition required to meet the challenges ahead and equip ourselves with better armour than we currently have.

What I wanted to clearly underline in giving you my thoughts now is to point that in the midst of these other crises, the commitments by government, civil society and business to climate action and decarbonisation has not fallen away as it has done previously during other financial and civil crises. There may be a brief pause on immediate investment and action constrained primarily by COVID restrictions, but the longer term goal is still in place. The global economy is moving under the guidance of the Paris Agreement and these increasing carbon restraints and constraints will have material impact on the long-term outlook of our economy. Before I hand over to our other presenters to get into the detail of how the market is operating, I wanted to note a few trends that we’re seeing in the global marketplace right now.

So, there’s been some things that have been put on hiatus. We’ve seen that COP26, that global meeting of nations under the Paris Agreement and the United Nations Framework Convention on Climate Change has been postponed from the end of this year to


November 2021. What this means is that those formal negotiations particularly around the finalization of Article 6 rules, those global market mechanisms have then been official delayed until that point. The intercessional meetings or those interim meetings of governments and negotiators that have been postponed until October this year have again been postponed due to those restrictions, particularly on meeting in person in Germany.

So, despite those postponements, there are still softer negotiations happening. Countries are still able to talk to each other and make virtually and try to build consensus around particular issues, namely, corresponding adjustments, double counting, the transition of some units from the Kyoto mechanism into the sustainable development mechanism or the Article 6 market mechanisms. But in the lead-up to COP26, one of the things to note is that countries have been expected to update their nationally determined contributions or their national targets.

Currently, seven countries have submitted their updated targets, two countries have proposed new targets, and seven countries have said that they will not update or will their submit their current or an old target, and 173 countries have not yet updated this or provided any understanding of what they’ll do. Australia’s position going into this process is that it will not increase the ambition of its current 2030 target, which is to reduce greenhouse gas emissions by 26-28% below 2005 levels by 2030.

However, the government has signalled the development of a long-term strategy, and I note the word “strategy” does not necessarily mean “target” here, and we see that the outcomes of the King Expert Panel Review into the emissions reduction fund recently released with the technology investment roadmap as being building blocks into this strategy. But, despite this lag, what we see is outside of those formal negotiations is that sub-national, civil society, investors and the private sector are moving and moving fairly rapidly.

I won’t go too much into these numbers, as I’m sure my colleagues from CBL and OMF will go into a bit more detail around supply, demand and pricing in these markets and other emerging markets like we see here. But we’ve seen is that these global compliance or formal carbon markets have been inexorably growing over the last three years, and despite a slight COVID deflation, these markets have remained relatively stable. Indeed, blocks like the EU Emissions Trading Scheme is looking at how it could use that scheme to create border carbon adjustments on emissions intensive imports into the group of countries. And as time goes by, these and other international trade measures are likely to emerge more and more, which in an international trading sense are likely to place even more pressure on nations like Australia to decarbonise to remain competitive in that market.

So, where are those things happening? This is a map of where those different markets have emerged and those colour schemes there represent those that are implemented, scheduled, or under consideration. And what I wanted to note particularly here is just a couple of markets. China particularly is preparing for implementation of their emissions trading scheme by the end of 2020, although there may be some COVID delays in getting the pilot started in the initial sectors.

South Africa is the most recent market to begin its operation and the unit registries have either just opened or they’re just about to open, meaning a new market is imminently


open to trading of carbon credits. Interestingly, this data that we’ve had on the previous slide and this slide are from the information gathered annually from the World Bank, and that information has just been released in the last few weeks. The World Bank also categorises Australia as having an emissions trading mechanism, as having an implemented mechanism.

And through the Emissions Reduction Fund auction processes, the government makes carbon credit purchases and therefore puts a price on carbon, currently at $16.10 as that weighted average price from the most recent 10th auction and via the safeguard mechanism, covered entities are required to purchase and trade in emissions reductions to manage their liabilities. So, what we see here is that Australia has a functioning carbon market with high integrity, transparency and accountability which stands us in good stead to potentially carve out a competitive advantage in future internationally linked carbon markets as they evolve under Article 6. Noting, of course, that Australia’s current policy mandate and settings don’t allow the transfer or trade of Australian carbon units internationally.

Also wanted to touch on the voluntary market drivers. So what we’re seeing in voluntary markets outside of those formal compliance mechanisms is that within these markets and increasingly outside of those markets, businesses are shifting their investment from general emissions reductions to investing more and more in nature and solutions that drive climate change and climate repair. Particularly in these voluntary markets, there has been a strong uptake of nature-based solutions and offsets driven by an increase in the visible climate impacts and subsequently the need for climate repair and that environmental drawdown and remediation of landscapes.

So, what we’ve got here is information from a report released at COP25 last year, the ecosystems, marketplaces, global state of the voluntary carbon markets, the 2019 report, and this showed that year on year, significantly more investment is being voluntarily funnelled into those carbon sinks than ever before. Voluntary market investment in nature-based climate activities are now far outstripping the nearest renewable project competitors. In 2018 alone, approximately 98.4 million tonnes of CO2 worth or carbon credits were traded in those markets with a total market value of around $295 million US total.

This marks seven-year highs in the trade of nature-based carbon units and this expansion and diversification of demand that you can see in the table on the right there as seen reforestation and afforestation projects grown emissions offset volumes by around 342% in 2018 alone, up from 2017 figures. 2019 figures are soon to be released, and expect it to reflect similar, if not greater growth rates. So, there is a lot of movement in the voluntary market and the corporate climate responsibility narrative has also begun to shift beyond emissions reductions towards that climate repair narrative.

As such, corporate interest in nature-based solutions through carbon market for both compliance and voluntary purposes has grown in recent years and certainly underpins a lot of activity taking place here in Australia. And it’s also been leading to an increase in market participants. In an increasingly carbon constrained economy aligned with the Paris Agreement, the ability to deliver carbon neutral claims, products or services to the market depends on a secure low-cost supply of offsets.


So, in addition to the rapid increase in net-zero corporate claims that are aligned with the Paris Agreement, companies are becoming more and more sophisticated in how they approach markets. Many are now taking a portfolio approach to investment in a range of different offsets, units, and project types and they are starting to investigate or develop their internal project development capabilities so that they can take a more active role in this. But that really depends on an organisation’s capital allocation, their balance sheet, and the risk approach that they would take to these sorts of markets.

More broadly, in looking at some of the voluntary market activity and demand drivers, I think outside of the public policy space there are several drivers, global and regional frameworks that are being used by corporates to establish strategic pathways forward in a carbon constrained world. And what we can see here is that it’s really starting to become a race to net-zero.

Up in the top left-hand corner you’ve got Telstra and City of Melbourne, that have made net-zero pledges by 2020 and others as we go down the line, net-zero by 2050, 2040, 2039. And these are big announcements in the market that really send a strong signal that if you want to be relevant, if you want to be able to build a competitive advantage in the market, then you need to be thinking about how you either get to net-zero or play a role in that for other companies.

So, other drivers behind some of these commitments are things like the UNFCCC climate ambition alliance, there are 15 subnational regions, there are 398 cities, 786 businesses, and 16 investors that have also indicated that they’re working towards achieving those net-zero emissions targets. There is a voluntary corporate commitments, investments targets, and all of this action is really increasing across the board.

So, initiatives here such as the Science-Based Target initiative and the TCFD are also driving corporate activity towards net-zero. So, all of this builds a broader picture, that the world is moving. And what I wanted to close with is that really for companies here in Australia and around the world, it’s in your best interest to build your own capacity now and the capacity of your organisation, so that you’re prepared to manage the risks and take advantage of the opportunities as they arise, and that you remain competitive as we move into a carbon constrained world, and that you do don’t get left behind. So, I’ll leave that there and hand back to Gloria. And look forward to the discussion.

Gloria Karaiskos: That’s great! Thank you Brad! [inaudible] I’d now like to introduce our friend across the ocean, New Zealand, Nigel Brunel. Nigel is Director of Institutional Commodities at OMF Markets and he is joining us here today from the trading floor at OMF. So, Nigel, I’d like to throw to you now for your perspectives and insights. Thank you.

Nigel Brunel: Great! Thanks very much and it’s great to be here talking to you all. I assume you can probably see me and hear me okay. So, I thought it would be interesting just to follow on from what Brad has talked about in regards to probably starting off with what’s happening with Article 6. Even though and I appreciate that some in the audience will probably have quite a good, deep understanding of Article 6, so I do apologise if I’m covering some ground that some of you are very familiar with. Most are cognizant when we talk to customers that there are a lot that aren’t really completely up to date with things.


Just to probably initially talk about, OMF Markets, even though I am in [inaudible] I am calling you from our bubble over here in NZ, OMF Markets has been operating in Australia for about 4 or 5 years. I’ll just bring up a slide of our platform. Some of you may be familiar with the fact that our MIF makes markets in ACCUs. There’s a platform there which you can visit under accus.com.au and you’ll probably notice in the top left corner there, our name is changing to Jarden.

For those avid readers of the AFR, you probably have heard on the street that there has been quite a big move by a company, Jarden, who bought our MIF and setting up in Australia on the merchant banking side. So, you’ll see a lot more with that and in the coming weeks and months we’ll be switching over to Jarden. So you can probably get rid of that slide for now and come back to me, and I’ve probably got one more slide a bit later on.

So, just to cover Article 6, because a lot of people went to Madrid with high hopes and probably walked away feeling disappointed with the lack of progress really around Article 6, which is really crucial to the development of international markets, and also very crucial to voluntary markets, as well, in regards to certain things. Article 6, which is a relatively easy thing to sort of understand, has three main paragraphs and two which relate to carbon markets.

Article 6.2, which is really around accounting for transfers, now whether that’s a bilateral or done under a UNFCCC mechanism, the accounting guidance is underway and it really is coming down to sort of two main issues, and that is bring integrity and accounting. Now, there is a bit of complexity around this, as different countries have different NDCs and types of NDCs, but is very much agreement at a high level and many countries, which I’ll show you on a slide to come, are already talking with each other.

So, I’m not going to speak too much on the accounting, because accounting is a pretty dry subject most of the time. But if we move on to 6.4, which is really about the mechanisms, and this is really where I suppose there’s already architecture in place in regards to the CDM so this sort of moves afoot where private actors can effectively develop projects, and we’re seeing a few of these anyway. We do need a supervisory body and rules of engagement and how that’s going to be determined, and we’re quite a way away from that being done.

And of course, the big debate is how does it look for Paris. There are lots of decisions that are yet to be made about that. But having said that, there is a lot of projects underway and I’ll just bring up that slide right now, talking about the pilots that are operating, and there are many of them. And some of you might be aware of some these, such as the EU-Swiss ETS link, which is true to style, I think it’s being delayed to 3rd Quarter this year, but as you can see there, there are a number of pilots underway and many more to follow.

So, I think if you look around you can certainly see right across the globe. Whilst New Zealand itself and Australia hasn’t developed any of these, I think seeing it from a New Zealand perspective, we do expect some of these to be happening in the near future. The crucial thing to understand with Article 6 as it relates to compliance markets says there’s probably around 90 countries that will need access to international markets. They can’t do this domestically.


And I think the other thing that’s really important to understand, the difference between Kyoto and the Paris Agreement. One, obviously, that Kyoto was for developed countries and Paris basically includes everyone. But the Paris Agreement is not a unit-based agreement, whereas in Kyoto people will turn up with their AAUs and work out who is long and short, whereas under Paris it’s really about proving how you’ve been able to meet your obligations, and there’s a number of ways of doing it, but it won’t be a unit-base mechanism like Kyoto has.

So, what’s been happening sort of post-Madrid? Because obviously for those that were there, Sunday never seemed to end and at the end of it we didn’t get an agreement and then of course everyone sort of came back home and we all know what happened 1st Quarter and is still ongoing around the globe. So, there was a group that have met called the San Jose Principles, and this is a group of 32 countries that have met post-Madrid, and it’s really about sort of setting a benchmark for carbon markets.

So, they’ve agreed on a set of principles for high ambition and integrity and you can Google the San Jose Principles. Interesting enough, Australia is not part of that group. There are some high level things that they’re talking about, and a couple of these I’ll just read to you, “Ensuring environmental integrity and enable the highest possible mitigation prohibiting the use of pre-2020 units, Kyoto units and allowances, and ensuring that double counting is avoided.”

Now, obviously when I was speaking to our officials just in the last few days, clearly no one is able to meet in person and the reality is for a lot of these agreements to actually push forward and for them to be successful, they used to do that in person.

So, if you think that global climate policy was a little bit like boxing a glacier. When it’s a person, you can imagine what it’s like being done under Zoom and Microsoft Team Meetings, and things like that. But nevertheless, people are still meeting, there are still as you see with that previous slide, a lot of pilots underway, there’s a lot of desire for these markets to move forward, and I think whilst nations are starting to move forward on some of these things, I think what you will find is that they will get the accounting and the mechanisms, well, certainly the accounting catching up. So, fingers crossed that sort of happens in the months ahead. I suppose just touching briefly onto voluntary markets.

Here’s what’s really interesting, and for those that probably were aware, the voluntary market is almost becoming the new compliance market in regards to its size. And also, people have to be aware that Paris is also a voluntary agreement, but it’s clearly moves afoot by lots of private organisations to do something about the carbon footprint and a lot of it is being driven internally but there’s also external pressures coming from the whole EST movement now, where we’re seeing large funds Some of them completely divesting of fossil fuel investments, some taking a more pragmatic or transition approach in looking to keep those that are being seen to be doing something around their emissions and divesting for those that don’t.

But there is also a pressure coming internally from boards, because it’s now a board that can’t really sit there and say that with the scientific evidence that it doesn’t have to do anything about its emissions. And as some of you have been aware, there has been over a thousand climate change court cases globally from the beginning of last year where people are effectively activists walking into courts and suing companies, states, even


countries, and we’ve seen that here in New Zealand and you’ve actually seen it in Australia, as well.

Article 6 can be really crucial to voluntary markets. We saw Gold Standard come out and seeking a firm line on Paris era offsetting. And I know here in New Zealand, the government is doing a lot of workaround how the voluntary market has to operate going forward, because there’s few things certainly here that you need to be aware of and actually follow in order to be claiming that you’re voluntary offsetting. And obviously, one of those is to be accounting accurately but also developing a reduction process on how you’re going to reduce emissions, and offset units that have high integrity. Already, that’s happening now.

So, I believe the data going out that you’re buying 30-cent CERs, no matter how good you might think they are, just aren’t going to cut it going forward. And clearly, we do need a resolution to Article 6 because it’s very important that you don’t have two types of people laying claim to the same credit, and this is going to be very important going forward from next year. So, I might just leave it there for now and just maybe pass it back to you guys, if there’s any questions and anything else you’d like to know.

Gloria Karaiskos: Great! Thanks Nigel! Thanks very much for that. We did think green was the new black, but clearly voluntary is the new compliance, so that’s a good takeaway there. Also, our next presenter today is Ben Stuart. And Ben is the Chief Commercial Officer at CBL Markets. I’m just going to bring Ben up on to line here to share his slides and insights with us. So, bear with me while I just get the slides up and will shortly [inaudible]. Ben is joining us today from Sydney.

Ben Stuart: Thanks very much for the opportunity to present at CMI event. My name is Ben Stuart, I’m the Chief Commercial Officer here at CBL Markets, which is a part of a broader [inaudible]. For those who don’t know who we are, I think I’ll run through a couple of slides just to introduce what we do and where we fit into the global marketplace. Can you just go to the next slide? Thanks, Claire! CBL Markets, we operate a spot trading platform in the environmental commodity space where we look at multiple markets around the globe, primarily focused on the Australian and US marketplaces. And the key to our business is we are looking at all markets [inaudible]. And ultimately, the point of our platform is to try and bring it to price transparency and automation and a credible playing field for participants in markets that are growing very rapidly at the moment but have previously been very segmented and not well serviced by exchange technologies.

Can you go on the next slide, Claire? Just answer quickly some of the products that we do trade. So, here is a list of some products that we operate in renewable energy across the US, Australia, the global offset market primarily, in the traditional voluntary carbon markets being Verra, Gold Standard, and others. And we also operate most recently in the aviation carbon exchange, which is an exchange platform we’re working with in conjunction with [inaudible] servicing aviation industry, and I’ll touch a bit more on that later.

But I think there is some relevance in some of the frameworks that the aviation industry is putting in place that I think has a broader application to the carbon markets more widely than just aviation. And we also operate in one of more [inaudible] products we are bringing to market is a differentiated gas product which allows companies to trade and


purchase, so it’s much like a renewable energy, but the gas then allows you to purchase attributes based on the production of that gas.

So, for instance you can buy a non-fracked certificate if choose to help support that gas, then you can make claims that you’re supporting non-fracked production sources. And yet, there’s a lot of other programs especially in the US around carbon intake and gas production is driving a lot of that product development in that space, which I think ultimately will have application globally as those markets progress.

Just going to some of the trends now that we have been seeing in the market. [inaudible] Some of the things we’ve seen, a big market trend in shift [inaudible]. Traditionally, the global carbon market has been said to be more of a discretionary spend, something that companies in times of hardship would potentially put on the chopping block and no longer pursue as an entity. Now that has definitely changed. We’re seeing claims that are made and positions in this space arise, you’re going to need a social license to operate, and that [inaudible] are becoming a big driver towards the ability to be financed [inaudible].

We’ve seen a lot of change in supply and demand. In the voluntary market, traditionally that market has been oversupplied and in the research in the last 12 to 18 months we’ve seen a lot of great tightening of that supply and that kind of resonates a little bit further with what we say is the rationalization of the carbon market, and then this is what we have associated with where we’re seeing things [inaudible] within that framework had come out with its relevant offset projects that are going to be eligible into those spaces and that is now sort of setting a guideline for [inaudible] around in order to create some sort of rationalization of what is the true [inaudible].

And I think that has really significantly changed how carbon is priced globally going forward, utilising offsets as the basis rather than allowance markets or any other mechanisms that are out there that are very much regulated and can change with the stroke of a pen. Pricing is definitely on the move, as I think we’ve all seen in products. There has been quite a significant uptick in price in a lot of these products where

[inaudible].

Previously we’re able to buy like 30-cent offsets, that’s a rare possibility, which is quite interesting. The emergence of some of these differentiated products I think is something the is really interesting, it has a great alignment with the [inaudible] of voluntary market [inaudible] carbon markets [inaudible] speaking that previously where there is a big alignment around production factors [inaudible] produced and there is a lot of work being done and a lot of movement in this space [inaudible]. However, gas sector in the US [inaudible].

And finally, then the ability to have more data and see more pricing and analysis of these markets is helping bring a lot of traditional trading practice into the marketplace. [inaudible] creates stable significant data sources to be able to provide them, we need information that is relevant so that these products can get through risk and compliance tolerances is now becoming available. And therefore, we’re seeing a lot more of the traditional actors and traditional market trading firms become more active in this space. To the next slide, please. Great, thank you!


So, this is just an indication of some of the volume growth that we’ve seen in our own platform over the previous years. As you can see in 2020 there is significant uplift in volumes [inaudible]. That something is a trend that everyone is sort of been realizing, the [inaudible] in offset markets has changed and they are now very much a relevant part of a company’s ambitions and processes towards some of the targets that they’re looking to achieve.

So there has been significant growth, and actually the majority of that was in the 1st Quarter of this year that we saw significant growth. Obviously, there is a slight slowdown in markets with COVID and then becoming a global issue. And since then, what has really surprised me as someone who has been in this market for a long time is that the resilience of this market has shown through such a huge upheaval in global economics, whereas previously this could have been very much a casualty [inaudible], this market has continued to perform and grow.

[inaudible]

The aviation industry as we mentioned, this was probably one of the key drivers to a lot of uplift in the 1st Quarter this year and obviously that has sort of slide down a little bit with the natural pressures coming down on the aviation industry. And therefore, probably, the airlines themselves specifically are looking to get in and be very active in the markets it’s sort of been a bit of a holding place at the moment. But ultimately, we are seeing that a lot of those people that would normally supply or be natural [inaudible] are picking up a lot of that slack and looking to get in and stop trading in that space.

[inaudible] And they are now actively engaged with this platform to understand and educate themselves on how to utilise this, how to access the carbon markets, which in the current circumstances is a real significant amount of momentum that is still being put behind this programs which is very exciting.

If we could just go to the next slide, there where we have the impact analysis. Obviously, I think there are a lot of different opinions floating around about this exact issue at the moment and there’s a lot of unknowns going into this. But ultimately, like everyone else, there are different opinions and this is just one perspective on how we see the impact of COVID-19 and what the relationship it is to bouncing back towards making offsetting applicable within the CORSIA market. And as you can see there, sort of a medium case, probably a best case scenario would suggest we think that buyers will sort of exceed the 2019 baseline should that be the process that you put in place by CORSIA to just look at 2019 baselines, that we should start to see activity in sort of late 2021 and early 2022. On a worst-case scenario, we see that pushing more out to the start of 2023. And that’s it! Thank you and apologies for the disruption in regards to technical difficulties. And hopefully that wasn’t too painful for everyone.

Gloria Karaiskos: Thanks a lot Ben! We were able to hear you loud and clear, so thanks for persevering and I appreciate your insights. The significant uptick in offset activities is really interesting. In particular, the resilience of the market that you’ve mentioned carries on despite some of the implications of COVID and the economic situation. And in fact, that has been a lot of questions coming through related to that, as well, in terms of what’s happening. So, I think you’ve done a great job of answering some of those questions in advance.


Now I’d like to move to the Q&A, I can see a lot of you have been asking questions and in fact using the upvote which has been great, allowing me to prioritise some of those questions. We might start with the most popular one at the moment. And of the back of the announcement that Australia and New Zealand are hosting the Women’s World Cup in 2023, there is a question for you, Nigel. Are Australia and New Zealand looking to initiate Article 6 pilots with each other or with any other countries?

Nigel Brunel: Yeah, hey, first congratulations to getting the World Cup for both of us. I think that’s a fantastic effort for women’s football, fantastic to see. Okay, so, New Zealand is definitely having conversations with other countries in regards to what it can do, though none of these are being made public at this stage. In relation to Australia, I can’t talk for what Australia might be doing in regards to having its own conversations about potentially doing deals with other countries.

I know Australia has talked about the fact that the credits won’t be available for export. But I think, the big issue that Australia will face is if it sticks to its plan to take forward its Kyoto surplus into Paris. I had a chat with our officials around what they would think about the linking with Australia because we’ve always said Australia could be and potentially is a fantastic carbon market. But, it goes to the heart of integrity. You’ll find that some countries might struggle linking with Australia if it takes through that Kyoto surplus, because it goes to the heart of the integrity of therefore the units that might be coming out of Australia.

So, I don’t know what Australia is doing in its own right in regards to looking to do Article 6 pilots. Your own [inaudible] would be best to answer that. But I know that some countries would, certainly New Zealand and others would struggle to do deals, if in fact you do take forward that Kyoto surplus. And we still want to do the World Cup up together, so despite that point. But yeah, we’ll struggle if it holds onto that view.

Gloria Karaiskos: Okay, great, thanks Nigel! Ben, are you still with us at the moment? Just checking in.

Claire: Yes.

Gloria Karaiskos: He is, thank you Claire! I just have a question for you here, as well. In terms of, I know you touched on international markets and COVID implications, but how do you think that is going to impact the voluntary market activity and what’s the global outlook potentially for prices and key considerations for corporates looking to engage in the short to medium term, I guess as we come out of this global pandemic?

Ben Stuart: As I mentioned, I think that the voluntary market has shown pretty amazing resilience through this period. Normally a downturn like this would have spelled a very significant pushback from that market that may have put it back many, many years. But as I mentioned, the perception around this being something that is a discretionary span seems to have left the vocabulary of corporates now and all those companies looking to make claims toward neutrality or net-zero emissions has [inaudible] are also very relevant and are also very much pursuing those outcomes. I would say actually significant interest in the last 3-4 weeks, and I think the initial shock to the system and the upheaval that COVID caused to many organisations seem to be ironed out a little bit now with working from home and people being able to operate a little bit more smoothly. And as such, we have seen the interest come back into the carbon market, a little bit similar to what it was in the 1st Quarter of this year.


So, we think the outlook looks very positive and very strong for the global voluntary market. And I think we have the data would say that is right and that the actual pricing has come up significantly, admittedly from a low base in a lot of cases, but it’s rising all the same. So, we can say that being a continuing trend, and that given it’s still probably perceived as a relatively underpriced commodity class at the moment given where internal cost of carbon is probably being priced by a lot of corporates. And they have the source offsets that are very high integrity and have a lot of added attributes and benefits to them for certain $1 US is still very attractive for a lot of corporates that are able to shore up some of that supply, because it will get squeezed very quickly, it won’t take a lot more demand to drive that up much higher.

Gloria Karaiskos: Do you have view which jurisdictions or industries that have the most active, or those can change their market behaviours that you see might be engaging most in the market in the future?

Ben Stuart: Yeah, I mean we obviously the airlines was a big buyer and we do see them coming back, especially a lot of the ones that made voluntary commitments outside of just CORSIA commitments [inaudible] to be strong. I think the oil and gas sector is definitely really looking to make some significant moves and [inaudible] markets are very active. There are a lot of different [inaudible] is going out now for supply, some sort of differentiating LMG product that has an ASG or carbon neutrality element to it, so that’s been a big driver. Generally, across the entire sort of community and society we’re seeing a lot of actual [inaudible] varied players. [inaudible] And as I said becoming embedded in [inaudible] companies. So, we’re sort of seeing a very much broad movement, [inaudible] oil and gas sector, and some of the aviation sector [inaudible], and also shipping, I’ll add shipping to that list. There’s quite a lot of information I’m interest that the shipping industry (inaudible].

Gloria Karaiskos: Great, thanks Ben! I can see a few questions streaming through here. And I’ll try and kind of change tack and move over to end it now, and get Nigel to answer one about in light of the court being delayed, the future of CERs and the CDM. So a [inaudible] on the legal basis of the issuance of CERs post-2020 and whether there will be an out of session ruling on this, and also where a vintage rule might be applied to CERs. If you’ve got any comments on that, Nigel.

I’ll just unmute you first. Hang on a second.

Nigel Brunel: Done unmuting myself. Much easier to be hear doesn’t it? When you do that.

Yeah look, there’s a lot of contention around this because there are some countries certainly in Madrid that were very keen to carry forward CERs, and the amount of sort of CERs out there pre-2020 potentially could flood the market, there’s no doubt about that. And when you look at sort of premises around Paris which is around emissions reductions from 2021 onwards, it doesn’t really [inaudible] can really be done in carrying these forward.

Having said that, there are some CER projects that still have emission reductions coming into the 2021 and beyond period, right? And I think there will be a little bit of a transition to allow some of these. I think we are still waiting for a ruling or a view from an out of session comment on this and I think we will get it. But clearly, I think pre-2020s have got no chance, but I think projects that have sort of having said that integrity [inaudible] and


clear emissions reductions, in the next decade could potentially be allowed through for the first couple of years.

Gloria Karaiskos: Interesting, thank you. Just looking through the upvotes here and what’s getting most activity, I’ll just throw this onto the floor as well. There’s one about the size of the voluntary offset demand particularly in Australia, so outside of the Emissions Reduction Fund or Climate Solutions Fund, what do you think that looks like? Feel free to chime in, any three of you.

Nigel Brunel: I let Ben [inaudible].

Ben Stuart: Thanks, Nigel!

Yeah, that’s a pretty hard target to put a pin in, in terms of size. I can say it’s growing significantly [inaudible], it could be anywhere from 10 to 25 million tonnes of demand, that’s a wide range, but it definitely has a significant amount of growth, I think that would be probably a pretty fair estimate I would imagine.

Nigel Brunel: And probably just to add to that, I think what you’re seeing is a lot of private companies have really been getting the hit around what their emissions are and what they can do to reduce, without necessarily at this point in time moving into offsetting. By more saying, look, for example, if our goal is to be net-zero by 2025 or 2030 and then starting to look to move towards that time of being a time that they actually start purchasing and offsetting. There are a lot of companies that are doing that already, albeit some a lot smaller as opposed to some of the bigger ones.

But that’s certainly what we’re seeing and some of the discussions we’re having with customers is that they’re actually in the process of accurately determining what their emissions are, working out ways that they can actively reduce. Because bear in mind, offsets are only over a transition and then I think in the years ahead they’ll say right, this is where we’re going to move into the market.

Now, some of those discussions, interesting enough, they’re saying how can we hedge some of that risk, because everyone is of the view that carbon prices are going to rise in the years ahead and are rising. We’re seeing our carbon price in New Zealand go from 25 kiwi to $32 for European carbon have strong rise, and South Korean as well. So, I think there is understanding amongst corporates that while they not necessarily need to be buying right at this minute, they are sort of looking at ways they could potentially hedge that risk.

Brad Kerin: I’d agree with that, as well. I think what we’re seeing, and a lot of this is anecdotal from just being out in the market as much as you can at the moment, but hearing from a lot of companies that they’re going through that process and they’re starting to engage in longer term offtake agreements for delivery of units in post between 2020 and 2025, that sort of 3-5 year timeframe some of them. It’s trying to shore up that supply chain so as Nigel said you can kind of manage that future price and hedge against that.

But I think there is also a competitive element here. A lot of this activity is kind of happening behind closed doors in Australia, because I think there is a competitive advantage to be had if you can say we’re now going carbon neutral, you’re able to make that announcement. And so, companies that sort of shoring up their position and building


that supply so that at some point in the future they can hit the button and make that position known. But I think that it’s hard to tell because we don’t have a lot of process discovery here in Australia. The voluntary market isn’t that transparent at the moment, so it’s hard to tell what that size of the market would be, certainly bigger I think than in the spot market or in that sort of shorter term purchasing timeframe it would be bigger than say the safeguard mechanism compliance market in Australia. But I would say that there is definitely a lot more action happening that you kind of just need to almost hear about it from the people that are doing it and by trying to talk to businesses and understanding some of that. So, it’s definitely happening. It’s definitely growing. But it’s happening quietly.

Gloria Karaiskos: Okay, thanks guys! Thank you. I want to just move on to a question now around supply chains and how they’re being impacted by international commitments, so obviously, corporations making net-zero commitments. What role would you say is the supply chains are having or are playing in enabling supplies to demonstrate that their product is low emissions? And, do you see that activity picking up or that kind of conversation happening with corporates?

Nigel Brunel: Maybe to just quickly add, we certainly have had discussions with some very large corporates here in New Zealand and also in Australia that are actually being asked those questions by their end customers about their supply chain. So, it all comes into that whole picture around the fact that a lot of companies are getting pressure from customers, they’re getting pressure from boards, to actually demonstrate where their emissions are and what they’re doing about them. And certainly, as some countries start to step up towards Paris and also have their own obligations from the importing of emissions, is what’s being done about it. We’re definitely seeing those conversations being heard.

Gloria Karaiskos: Great! Brad, did you want to chime in on that?

Brad Kerin: I did, yeah. I’m just over here writing some notes. I think there’s a few ways of thinking about this, about the supply chain. There is sort of the emissions within a corporate supply chain and thinking particularly around how you manage the indirect emissions. And what we’re seeing is a lot of companies, the large companies made it net-zero by 2050 target or they’ve got a relatively sophisticated climate strategy and the secondary pace of that is how do we account for and manage our indirect emissions. And that’s really difficult.

It’s really difficult to account for those emissions to understand across your whole supply chain, the secondary and tertiary supplies, what those emissions are and the ability to build the capacity within your supply chain to measure, report, verify those emissions and fully account for that is, I think that problem hasn’t been solved yet. But certainly, CMI and through some of our activities with our corporate members, we’re looking at how we could play a role in making that easier for companies to do. So, that’s one part.

I think there is a second part around particularly if you’re looking at carbon markets where you’re trying to understand the supply chain of carbon within the products that you’re trading, probably into another market, but also the supply chain and trying to manage the supply chain of a carbon project. So, in terms of the supply chain of particularly emissions intensive commodities, I suppose that Australia might be sending overseas. There is a question about, are you trading with a country that at some point will


have an emissions trading scheme or a compliance liability that means that companies within those nations need to reduce their emissions.

So are you able to send a carbon neutral commodity or provide a carbon neutral input into that company’s supply chain. We, in Australia, sit within the supply chain of many companies in the Asia Pacific region that are putting into place these trading schemes. And so, is there an ability in the future for Australia to staple Australian carbon credit units to iron ore or to other commodities, grain, etc., that we send into other countries, staple that, and therefore essentially almost have a carbon neutral input into someone else’s supply chain or country.

So, that’s a question that there is a lot of regulatory tools and bilateral arrangements that would have to happen between those countries. But, that’s certainly something that other countries and companies within Australia are considering and looking at how that might work. The other part of that is also the supply chain of carbon projects and this goes to the issues around integrity, transparency, and accountability. Is that if you want to be able to develop a carbon unit that has the right qualities for it to be traded under Article 6 and in future markets, you need to ensure that the supply chain of inputs into those processes are really high quality.

And a lot of those are more, they have to do with the enabling factors rather than physical technology or pieces like that. It’s around legal risk, it’s around land tenure, the license to operate in environments, the professional and governance structures you have around these things. We’ve got a lot of that in a really strong way here in Australia, but particularly in the region as we move through, I think there is a lot of things that you need to try and understand and build I guess that institution for more strengthening in the supply chain of carbon projects. So, I think there’s a few things in the carbon market conversation around that. There is the Scope 3, there’s the providing carbon neutral inputs through the use of units, but then also the supply chain of the units themselves. So, some longwinded thoughts from me.

Gloria Karaiskos: Thanks, Brad! Lots to consider there and a lot of interplay in considerations when it comes to the market and different companies interacting. So, thank you for that. And we have just brought us to time now, so I really just want to say a big thanks to all our panelists today. Thank you to Nigel and Ben for joining us. Brad, of course, from our team. All the people behind the scenes that have made today happen of course.

And we look forward to hopefully seeing you next week. We’ve got our series put up on the screen there, so we’re going to come a bit closer to home and bring the conversation here to Australia, to the domestic market and some of the dynamics around what’s happening here. So hopefully you can attend that one. You will be given a reminder to join for the next week’s event and we hope that you can join us for the entire series. Thanks again to everyone! Enjoy the rest of your day! And thank you also for joining us!


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International market developments - Clean Energy Regulator€¦ · Web view2021. 4. 9. · I think the oil and gas sector is definitely really looking to make some significant moves