News
22/07/25
Australia’s CCS carbon credit pathway to remain limited
Sydney, 22 July (Argus) — 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. By Juan Weik Send comments and request more
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