Australia's potential to generate Australian Carbon Credit Units (ACCUs) from carbon capture and storage (CCS) projects is expected to remain very limited in coming years, with industry proponents arguing the alternative safeguard mechanism credits (SMCs) are less valuable and carry more uncertainties.
CCS projects have been allowed to register for ACCU generation since October 2021, following the creation of the CCS method under Australia's former emissions reduction fund.
But changes implemented in 2023 alongside the safeguard mechanism reform restricted the registration of any ACCU projects that reduce covered emissions at a safeguard facility, to avoid additionality concerns once facility baselines started to decline. Safeguard facilities are instead incentivised to reduce emissions below their baseline to receive SMCs.
Australian independent Santos' 1.7mn t/yr onshore Moomba CCS plant in South Australia, which came on line last year, remains the only registered CCS ACCU project, as its registration happened before the legislative changes.
First ACCU issuance under the project is expected later this year, with Santos estimating 894 ACCUs for each 1t of CO2 equivalent (CO2e) injected into depleted reservoirs. The number of ACCUs issued to the project will be added to the net emissions number of the Moomba safeguard facility, to ensure the carbon abatement is not counted twice, according to the Clean Energy Regulator (CER).
ACCU pathway preferred over SMCs
Most CCS projects planned in Australia are aimed at reducing scope 1 emissions from facilities covered under the safeguard mechanism, which means the facilities would be eligible to earn SMCs if their covered emissions fall below their individual baselines. But SMCs have disadvantages compared with ACCUs, industry executives noted at the Carbon Capture APAC Summit last week in Melbourne.
"The volume of SMCs is going to be dependent on the baseline, so there needs to be a clear trajectory on how your baseline is going to change over time, and that is going to form part of your business case," Japanese upstream firm Mitsui E&P Australia Mitsui E&P Australia vice president of development Joe Ariyaratnam said during the event.
Mitsui has been developing the Cygnus CCS project in Western Australia (WA), which will store around 530,000 t/yr of CO2e from the Australian independent Beach Energy-operated 250 TJ/d Waitsia gas plant and Australian Wesfarmers Chemicals Energy and Fertilisers' (WesCEF) CSBP's ammonia plant in a depleted gas reservoir. The project will not be eligible for ACCUs, Ariyaratnam noted.
Norway-based fertilizer firm Yara will not be eligible for ACCUs either, if it goes ahead with its planned Pilbara CCS project, which could store up to 1.1mn t/yr of CO2e starting from 2030 or 2031, Yara Pilbara legal consultant Bennett Green told delegates last week. The company would be entitled to apply for SMCs if its scope 1 emissions fell below baseline, and it would be able to hold some units for future surrender obligations under the safeguard mechanism as well as sell some of them.
"Part of the challenge there is that nobody knows what an SMC will be worth in 2030 and beyond — so in terms of banking your project now it becomes very hard to rely on that," Green noted.
Beach Energy, which has a 33.3pc stake in the Moomba CCS project, has been calling for the federal government to allow all CCS projects to be able to generate ACCUs again. ACCUs can provide a revenue source to offset capital and operating costs for CCS projects, which generally face high development costs.
"This was a neat way of getting companies like ours to front-run their capital. I thought that was a great encouragement for the industry — but unfortunately, that has been taken away," chief executive Brett Woods told delegates at the conference.
Moomba's abatement cost is lower than current ACCU prices, so the CCS plant is "a good commercial project," Woods added.
Potential supply increase
Higher CCS ACCU supply, however, might come from potentially increased volumes at Moomba, as well as from projects that are either not associated with safeguard facilities or that meet strict eligibility requirements if abating a facility's emissions.
Moomba could be scaled up to as much as 20mn t/yr of CO2e in the future, with Santos late last year indicating it aimed to build a 14mn t/yr CCS business by 2040.
Australian blue hydrogen and ammonia developer Pilot Energy's planned Cliff Head offshore CCS project in WA, which could store up to 5mn t/yr of CO2e by 2030, would be able to generate ACCUs.
"From the outset, in designing the project, Pilot has engaged external advisors (…) to make sure the project's structuring from a technical, commercial and legal perspective is designed and executed in a way that maximises the ability to generate ACCUs," Pilot managing director Brad Lingo told Argus on 22 July.
The company plans to register the project with the CER only after it receives its carbon injection licence, which it expects to apply for before the end of this year. The CCS project could be operational in the second half of 2028 or early 2029, Lingo noted.
ACCU projects at safeguard facilities
Projects which abate the covered emissions of a safeguard facility must meet additional eligibility requirements to be registered under the ACCU scheme, according to the CER. Such projects must also involve abatement of emissions other than the safeguard facility's covered emissions. And they must be under a method that allows the calculation of the net abatement amount for the other emissions, separate from the covered emissions, the regulator noted.
"The CER is not aware of any carbon capture and storage projects currently in development that meet the eligibility requirements to be registered under the ACCU scheme," it told Argus.
ACCU project proponents must also ensure they register with the CER before they make the final investment decision, to demonstrate additionality, according to sustainability advisory firm Anthesis Australia's decarbonisation director, Thomas Hodgson.
"Though a broadly untested element of the policy framework, we would anticipate the activity of sequestering CO2 captured from a non-safeguard facility could be eligible to generate ACCUs, even if the sequestration took place at a safeguard facility," Hodgson noted, adding this would need to be carefully explored with the CER.
Ultimately, however, generating SMCs through carbon sequestration is generally "much easier" than generating ACCUs, he noted.
And even though SMCs are not offsets like ACCUs and cannot be used for voluntary purposes, they have been trading frequently over the last few months at prices close to ACCUs, according to data compiled by Argus. SMCs traded on 22 July at A$33.60/t CO2e ($21.90/t CO2e), keeping a A$0.50/t CO2e discount to generic no avoided deforestation (No AD) ACCUs.
