21 Jun 2024 | 04:06 UTC

Australia's new draft for carbon forestry method to provide certainty, ease project hurdles

Highlights

EP ACCUs assessed at A$50/mtCO2e on June 20

Existing EP method set to expire in September

Some changes to new method to ease participation

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The Australian government's proposed draft for a newer version of the forestry-based environmental planting method is expected to ease participation and provide investment certainty for projects that generate one of the country's highest-priced carbon credits, experts said.

The environmental planting, or EP, method involves the generation of Australian carbon credit units, or ACCUs, by planting native species of trees on land clear of forest cover for the last five years.

EP ACCUs were one of the highest-priced credits in Australia, along with Savanna Fire Management Indigenous ACCUs. Platts, part of S&P Global Commodity Insights, assessed EP ACCUs at A$50/mtCO2e ($33.31/mtCO2e) on June 20.

Under Australian rules, the current EP method will expire in September, and the lack of a replacement will leave project developers with few options for nature-based methods.

The draft, which was released for consultation on June 13, is fundamentally similar to the previous method, with some changes made to make participation easier, the Department of Climate Change, Energy, the Environment and Water said.

"In my opinion, the exposure draft incorporates the key changes suggested by industry," said Liam Crook, associate director, carbon at Canopy Nature Based Solutions, an Adelaide-based EP project developer.

Changes

Under the new method, the project developers will be able to own seeds before applying to register a project with the Clean Energy Regulator and can prepare the land for planting between the application and registration stages.

The draft permits an initial one-off fertilizer application during the first 12 months of planting for certain specific project settings.

It also allows the planting of climate-resilient species that are not part of the local native vegetation, based on endorsement from an ecologist.

The ability to undertake site preparation activities such as weed control, ripping and fence installation in the period between registration submission and confirmation effectively gives project developers a crucial extra 90 days to prepare for planting, Crook said.

The availability of seedlings can become one of the major bottlenecks before the start of an EP project.

"Seedlings orders often need to be placed 9-12 months ahead of the planting window, so early ordering is a practical necessity, and this new ruling should speed up project establishment," said Lachy Ritchie, CEO of Sydney-based Kakariki Capital, another EP project developer.

The method also allows the harvesting and sale of 10% of fruits, nuts, seeds and leaves from each tree within a project.

"I don't think the harvesting option is a big driver, but it does make EP more complimentary to ongoing farming," said an EP project developer, who asked not to be identified.

The key impact of this change will be to provide the conservation industry with a critical source of native seed for future projects, reducing the pressure on remnant vegetation, Crook added.

Ritchie highlighted that the change is more likely to support first-nation enterprises and other small business activities being implemented on the land.

Industry sources hoped that the new method would be implemented before the expiration of the current method.

DCCEEW should prioritize EP over other controversial and challenging methods, such as the delayed Integrated Farm and Land Management method.

IFLM was set to allow the registration of new vegetation-based projects following the expiration of the popular Human-Induced Regeneration method in 2023. This method accounted for one of the highest numbers of registrations among Australia's vegetation-based projects.

However, IFLM has been delayed due to the need for more consultation.

"Everyone wants to see more native trees being planted, so there is no reason to delay this method, and we have high hopes that the DCCEEW can deliver the method by September," Ritchie added.

Investment clarity

EP project registrations rose to 73 in 2023 from 53 in 2022, with 23 projects registered so far in 2024, according to CER data.

Market sources previously said that some of the investors were holding off on finalizing decisions due to a lack of clarity on the implementation of the new method.

"Any gap in the ability to register new environmental planting projects is seriously undesirable and will delay investment into the market and trees being planted in the ground," Ritchie said.

The CER had earlier advised that new EP planting projects should be registered by July 2 to provide ample processing time before the expiration of the existing method.

"Investors, project developers and all the supporting businesses need confidence in when registration will be able to recommence," Ritchie added.

With the release of the consultation, the new draft is expected to bring more certainty and confidence to the market.

"Investors need a level of certainty, and a no-gap scenario will allow more planting projects to proceed in the 2025 planting season," Crook said.