Australia's biggest bank invests in nature-based carbon project developer unit

Commonwealth Bank of Australia has bought a minority stake in a unit of a nature-based carbon project developer, Greening Australia, to help increase the supply of native seeds to support rising demand from environmental planting carbon projects, the companies said May 30.

Melbourne-based Greening Australia is a developer of carbon projects based on environmental planting method, which involves establishing and maintaining vegetation such as trees or shrubs on land that has been clear of forest for at least five years.

CBA is Australia's largest bank.

The projects are issued Australian Carbon Credit Units for sequestering carbon through vegetation, and can be either sold to the government under reverse auctions or in the spot market.

The investment in Greening Australia's Nindethana Seed Service, which provides native seeds for environmental projects, aims to increase the supply of seeds for EP and other land restoration projects as businesses increase investment to meet their environmental goals.

"Our wider partnership with Greening Australia will allow us to collaborate in carbon abatement projects with biodiversity co-benefits and generate Australian Carbon Credit Units from Greening Australia's native reforestation and Blue Carbon projects," said Andrew Hinchliff, CBA group executive institutional banking & markets.

Environmental planting projects

"While typically small-scale in nature, Environmental Planting projects are favored by investors both for the good optics associated around the methodology, and their ability to command premium pricing as a result of this," said Kyle Hamilton, associate director, markets, Reputex, a carbon market research provider.

Australia's big emitters and companies, such as Woodside Energy, Mitsui and Aurizon, are investing in EP carbon projects to secure a supply of high-integrity ACCUs for compliance as well as voluntary emission targets.

However, the EP projects face several barriers in scaling up, including tight native seed supply, rising land costs, higher capital investment, and long lead time in the generation of ACCUs.

"At the moment the demand for native seed is significantly greater than the supply of native seeds, so that's what we are trying to solve with this investment," said Yasmina Elshafei, managing director, global carbon, CBA.

It takes at least three years before EP projects starts delivering ACCUs and only by the tenth year does the ACCU volume becomes significant, a major Australian carbon project developer told S&P Global Commodity Insights, adding that there was a shortage of seeds for EP due to a lack of available infrastructure to serve this method.

"These projects tend to have a high cost-base, due to the need to carefully plant a variety of seedlings from species of native vegetation found in the area in a manner that precludes automated sowing (as may be seen in forestry plantations)," Hamilton said.

However, it is not just a lack of native seeds that is holding back the EP projects from scaling.

"Partnerships like this are very important but I don't think seed availability is stopping us from planting trees. I think it is important that we have land to plant the trees on," said Guy Dickinson, CEO of Betacarbon, a blockchain-based startup providing access to ACCUs.

The price of a carbon farm in Western Australia had risen four-fold over the last five years from A$2-A$3 an acre to A$8 an acre, he said.

Supply and premium

There are 203 EP carbon projects registered under Australia's ACCU scheme, accounting for 11.4% of the total project registrations, according to data from the Clean Energy Regulator.

However, only a handful of these projects have generated ACCUs, which represented just 1.1% of the total ACCU supply in the fiscal year 2022-23 (July-June).

As a result of their short supply and high integrity, the ACCUs from EP projects are priced at a premium to Generic and Human Induced Regeneration, or HIR ACCUs.

Platts, part of S&P Global, assessed the price of Generic ACCUs at A$34.75/mtCO2e ($22.73/mtCO2e) on May 30 and HIR ACCUs at A$35.50/mtCO2e.

The EP credits are priced at around A$55/mtCO2e, according to a carbon broker, and trade rarely on the spot market due to their short supply.

"The voluntary market tends to place a premium on these projects both to account for the higher costs and lack of supply, along with the positive co-benefits optics of restoring native bushland," Hamilton added.