Australia's soil carbon developers see more issuance, high premium for credits

Australia's soil carbon project developers expect a ramp-up in issuance of credits over the rest of 2023 and plan to sell them at a premium similar to other high-integrity nature-based projects.

The positive outlook comes on the back of the issuance of nearly 155,000Australian carbon credit units, or ACCUs, since June to two soil carbon project developers: CarbonLink and Agriprove.

The latest issuances have arrived after a long spell of rising project registrations from 2015 but only two small issuances.

A soil carbon project aims to store additional carbon in agricultural soil, through activities including improving fertilizer application, reestablishing pasture, or modifying grazing practices.

A total of 470 soil ACCU projects have been registered in Australia as of July 23, with the latest issuance bringing the total soil ACCUs issued to 156,775 as of July 23, according to Clean Energy Regulator.

Long road to issuance

The long lead time in issuance for soil carbon projects led to the emergence of skepticism among some carbon market participants regarding the capacity of the method to generate ACCUs at scale.

"Sure, there has been an elongation of timeframes, but COVID-19 had a major impact," Matthew Warnken, managing director of Agriprove, told S&P Global Commodity Insights.

CarbonLink, another soil project developer, waited five years to take soil samples from its projects in 2021 but had to then wait for the new method to come into force late in the year, said chief operating officer Chris Mccosker.

"This year [2023] we got audited again as this was the first project to claim ACCUs under the 2021 method. That process took get time to get through," Mccosker told S&P Global.

The new 2021 method under which the latest credits were issued is sophisticated but also involves a certain amount of learnings in terms of getting the first projects through the regulatory process, Warnken added.

"The flip side to all of this is that with high technical complexity, and high administrative complexity comes also high confidence in its integrity, and rigor," according to Warnken.

Price discovery

The developers expect a premium for soil ACCUs over the current spot price, with price reflecting levels similar to environment planting, or EP.

Platts, part of S&P Global, assessed the price of Generic ACCUs at A$30.30/mtCO2e ($19.79/mtCO2e) and HIR ACCUS at A$34.50/mtCO2e Aug. 3.

Market sources have pegged the price of EP ACCUs at above A$50/mtCO2e, with broking platform Core Markets reporting a spot trade for EP ACCUs at A$58/mtCO2e Aug. 3.

Warnken said Agriprove has not sold its newly issued soil ACCUs yet but was looking to do some transactions in 2023.

"We have already seen soil carbon trading at a price premium," said Charlie Knaggs, partner, climate change & energy at ERM, a carbon consultancy, attributing the premium to the newness of the method, the relative scarcity of such credits as well as co-benefits in form of support to farmers.

Future supply

Both Agriprove and CarbonLink expect more ACCU issuances during the second half of 2023.

"We've got 30 projects where we have validated the increase in soil carbon stocks, and then we are just completing the paperwork to get that to issuance," Warnken said.

Considering a similar regulatory process, the projects could be issued ACCUs in 2023, he added.

Agriprove also forecast a further 80 projects to have an increase in carbon stock, putting them on track to get issuance, according to Warnken.

While not quoting a figure, Mccosker said that CarbonLink was expecting ACCUs issuance similar to levels seen earlier in 2023.

However, both the developers said that there might be periods of gaps as well as peaks and troughs in issuances over time.

There was a hiatus due to which there were no baseline measurements done as CarbonLink was waiting for the soil carbon methodologies to get approved, Mccosker said.

"There will be peaks and troughs, but what we're looking at is influencing that trend line over time, as you stack on and build in multiple projects that smooths out the issuance curve line," Warnken added.

Doubts linger

While the latest issuance has improved visibility for soil ACCUs, there are still some concerns within the market.

A carbon project investor and trader said that permanence was difficult to achieve for landowners under soil carbon sequestration, with the method also seen as expensive and difficult to implement.

Mccosker said that under the soil carbon method, there was no tradeoff between primary production and carbon development, with added benefits such as improvement in land productivity and resilience expected to incentivize farmers to maintain their project activities.

There were still some question marks on soil ACCUs, with the volume that can be generated varying based on who you talk to in the market, a second carbon trader said.

Warnken said the Australian government's A$50 million program for soil carbon measurement will support landowners and spur the development of new measurement techniques, with further issuances expected to bring down the costs of compliance.