Understanding the carbon credit market: Part one
Who’s buying and why: the demand driving carbon credits
As the world increasingly focuses on climate change, carbon credits have emerged as a valuable asset for both companies and landowners.
Credits represent one tonne of carbon dioxide (CO₂) that has been removed or avoided from the atmosphere, and they play a key role in helping industries and organisations meet their climate goals. But who’s buying carbon credits and what types are in demand?
Types of buyers in the carbon credit market
The demand for carbon credits in Australia is expanding, with various key players driving this market. These buyers typically include:
Big emitters: Large industrial sectors like mining, energy and transport are key buyers of Australian Carbon Credit Units (ACCUs). These companies are typically purchasing credits to comply with government-imposed regulations, such as the Emissions Reduction Fund (ERF). The government has set a cap on emissions and these companies need to offset their emissions by purchasing credits from projects that sequester or reduce CO₂.
Corporates: In addition to compliance-driven buyers, Australian companies across sectors like technology, finance and retail, are increasingly purchasing carbon credits voluntarily to help meet their Environmental, Social and Governance (ESG) targets. Goals such as carbon neutrality or net zero, are often responding to demands from their stakeholders, including customers and investors.
Carbon project developers: These companies act as intermediaries in the carbon market, connecting landowners with opportunities to develop carbon projects. They work with both domestic and international investors who are looking for returns from the buying and selling of carbon credits. Developers help landowners set up projects that maximise carbon sequestration and ensure compliance with the standards required for ACCU certification, as well as the Emissions Reduction Fund (ERF). These projects not only generate carbon credits but also often deliver additional environmental and social benefits, such as supporting local wildlife and getting communities involved in local land management.
What’s in demand?
There are a few types of carbon credits that are in higher demand than others, particularly nature-based credits and industrial carbon capture credits.
Nature-based credits: These credits come from projects that work with natural systems, such as tree planting and soil carbon sequestration. Nature-based projects not only capture CO₂, the main greenhouse gas, they also offer added benefits, such as improved biodiversity, better soil health and habitat restoration. For example, a reforestation project that also enhances local wildlife and/or provides ecosystem services, such as water filtration, is highly valued.
Industrial carbon capture: This method involves capturing CO₂ emissions directly from industrial processes, like cement or steel works, and either storing it underground or repurposing it for other uses. While this technology helps reduce emissions, it doesn’t typically deliver the same additional environmental benefits as nature-based projects.
Premium credits: a higher value opportunity
Premium credits are those that go beyond just capturing carbon. These are more valuable because they also contribute to biodiversity protection, improved social outcomes, and have high levels of transparency and integrity. Landowners who can offer projects that combine carbon capture with other environmental benefits, such as biodiversity or community involvement, will likely generate these higher-value credits.
To create premium credits, projects must meet strict standards for verification and transparency, like those outlined by the ERF or other international certification bodies. Landowners who can offer premium carbon credits have the opportunity to access higher-value markets and attract higher prices.
Turning potential into income
As the demand for carbon credits continues to rise, understanding who is buying - and what they value - is essential for landowners. By offering premium carbon credits, landowners can access higher-value markets, potentially increasing their revenue. With the right strategies, landowners can take full advantage of the growing carbon market.
Stay tuned for Understanding the carbon credit market: Part two, which
introduces the benefits landowners can get from the carbon market.
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