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Renewable energy and real estate

How Australian Agribusiness can play a key role in renewable energy

Carbon Markets 
Each year, every human emits or is responsible for between 10-20 tons of carbon dioxide emissions, with Australians at the upper end of that guidance. Current political commentary and policy relating to climate change on a global scale is providing Australian agribusinesses with a major opportunity to play a significant role in addressing such challenges. Rural landholders that have the ability to commoditise carbon are in a wonderful position to capitalise on the value created via land-based carbon sequestration and diversify their income potential. Whilst carbon markets and carbon sequestration is not a new concept, its relevance and importance have never been more significant as large corporates and big business drive the uptake of both Australian Carbon Credit Units (ACCU’s) and voluntary offsets. ACCU’s are registered with the Clean Energy Regulator, a commonwealth body, and are auctioned based on a supply and demand basis. Voluntary offsets are a contractual agreement between a project proponent and a business that has audited their footprint and is seeking to offset their unavoidable emissions. In both instances, the project proponent and the project itself is audited and needs to adhere to a very strict set of guidelines that are prescribed through the emissions reduction fund by the Clean Energy Regulator. These offsets are typically procured by an organisation that has taken a number of measures to reduce its carbon footprint. However, as a consequence of doing so, businesses need to procure offsets for the unavoidable emissions that they generate through daily activities.

How are the renewables generated? 
The carbon market is supplied with offsets through a number of mediums, most commonly using land-based methodology of which there are currently 17 approved methods. Across the different land-based methodologies, vegetation-based projects makes up the vast majority of offsets currently supplied. Such methodologies include the following – Human induced regeneration, plantation, savannah cool burn back burning, environmental planting and reafforestation just to name a few. Such methodologies are adopted based on the ability to measure and audit the projects in a cost-effective manner. Recent publicity around Microsoft offsetting their carbon reveals it has been delivered through Soil Carbon Sequestration. This method is proportionality more expensive than other techniques, however it is this technique that the Australian government believes is a key pathway forward, hence the heavy investment in determining more cost-effective ways of measuring soil organic carbon levels. In a recent government announcement, a grant of A$5,000 will be made available to suitable applicants looking to carryout Soil Carbon Sequestration projects that are registered with a relevant Commonwealth contract. 

Who is buying ACCUs? 
According to the Australian Clean Energy Regulator, the offset marketplace represented a demand of around 53 million tonnes of carbon abatements in 2020, with circa 16 million ACCUs issued and contracted. Carbon emissions are expected to grow by 17%, to 57 million tonnes in 2021 and ACCUs issued increasing by 8% to 17 million. The marketplace or businesses looking for such abatements ranges from government bodies/ organisations, airlines through to large oil and gas businesses to data centres and property funds. Economic and social drivers are key to large investment funds and stakeholders mandating that the direction of their organisation must achieve carbon neutrality on a time horizon largely viewed as being 2030. Social drivers coming from the younger generation are driving commitment to change by the way they consume products or the position that they hold within an organisation as they climb the corporate ladder.

What are ACCUs worth? 
The current spot market price for an ACCU is hovering around the A$17 per ton trending upwards based on recent pricing. Many experts are predicting the price to move closer to A$30 per ton over the next decade as the volume and demand increase gradually over the same period, keeping in line with the Paris Agreement and its objectives to limit global warming to 1.5 degrees Celsius. The voluntary offset marketplace is somewhat different in its approach to pricing as it extends beyond the price of carbon, and also takes into account benefits with a significant social attachment. Businesses acquiring voluntary offsets are typically looking for the ability to generate other tangible benefits through marketing initiatives or social ones that contribute to indigenous employment. These benefits typically look to address other key Environmental Social Governance (ESG) benefits. The voluntary offset marketplace is operating with a price per unit north of $A40 per tonne, and in some instances as high as A$100 per tonne based on the origin of the project and its prominence and meaning to the company acquiring those offsets.
 
How can Agribusinesses benefit? 
Agribusiness have a huge opportunity to capitalise on the demand for ACCU’s by way of establishing such projects on their land holdings. To establish a carbon project, a project developer would be engaged to outline the carbon potential and identify the methodology suitable to the land use. The carbon marketplace and project registration process is one that has many levels of complexity. There are many groups and project proponents specialised in different project registrations and not all land types and size of farms are suitable. Colliers through its Alternative Infrastructure team is well positioned to assist with navigating the jargon and acronyms associated with understanding the process.
 

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George Wragge

Director | Alternative Infrastructure

Strategic Advisory

Sydney CBD

Having worked in the property industry for over 10 years, specifically the retail sector, I have consistently been challenged to deliver additional returns for investors and savings for tenants.

Looking at real property assets with a different perspective has led me to address key sustainability initiatives coupled with a desire to improve savings and costs bases for all property sectors.

My key property relationships and understanding of such forms a solid foundation from which to build such initiatives and deliver new and emerging technology or ways of thinking.

 

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