CO2 Group calls 'Timberrr!' on Direct Action

The departure of the CEO from Australia's leading forestry carbon credit business, CO2 Group, signals a vote of no confidence in the government's Emissions Reduction Fund.

Yesterday we reported that the long-time chief executive of the CO2 Group, Andrew Grant, would be departing the company. CO2 Group is one of a very small number of Australian listed companies that are focused on the opportunities flowing from the need to reduce carbon emissions. 

Importantly, CO2 Group are probably one of the best positioned companies (in addition to landfill and coal mine methane power producers) to benefit from government’s Direct Action Emission Reduction Fund. 

Yet the departure of its chief executive seems to signal a vote of no confidence in the ERF by the board of CO2 Group.

The company in announcing the departure of its chief stated:

"Recent changes in government policy, the proposed abolition of the current carbon pricing regime and continuing uncertainty in the carbon market generally has led the Company to reduce the scale of its carbon operations and pursue new growth areas, such as expanding its environmental services and trading businesses and its developing aquaculture business."

The Coalition has been keen to push the idea with the general public that planting trees would be a major feature of how the Direct Action scheme would make “practical” changes to reduce Australia’s emissions. And if anyone was going to make a fist out of supplying serious quantities of abatement from tree plantings under Direct Action, the odds would be on CO2 Group via its subsidiary CO2 Australia.

CO2 Group was the first company to create carbon credits through creation of new forests under the Carbon Farming Initiative (established under the prior government to encourage abatement in the land sector) and is the largest producer of CFI carbon credits through this form of abatement. Environment Minister Greg Hunt has said on several occasions that the government’s Carbon Farming Initiative will represent the cornerstone mechanism for assessing the eligibility and certifying the carbon credits for abatement projects under his ERF. 

In addition CO2 Group was the first and only company to create carbon credits from newly planted trees (as opposed to pre-existing forestry plantations) under the NSW Greenhouse Gas Abatement Scheme. It was also the key provider of carbon offsets for Woodside to comply with EPA requirements in its Pluto LNG project. This $100 million initiative will create Australia’s biggest commercial emissions offset program based on dedicated forest carbon sink plantings. According to Woodside, approximately 27 million trees have been planted up to 2012.

Yet while the company has been a leader in development of forestry carbon credits, the constant chopping and changing of governments' carbon emission control policies has forced them to diversify. It also illustrates how the introduction of the national carbon pricing mechanism has not been an entirely positive development for the company.

The company has had the misfortune to see the prospect of a national carbon pricing mechanism used as an excuse to dump both the NSW abatement scheme and the requirement on Western Australian LNG projects to offset their field emissions on the basis that such regulations were redundant. Yet now it looks like the carbon price will be abolished, leaving Australia with no regulatory requirements governing carbon emitting facilities.  

It has consequently diversified into the trading of other environmental credits such as Renewable Energy Certificates, and supporting resource companies in complying with environmental offset obligations outside of carbon. Most recently, it has moved into aquaculture, building on its skills in management of natural resources.

The backers of CO2 Group have spent around 10 years pursuing an initiative which just about every politician in the country has been anxious to suggest they support. But it appears they’ve run out of patience – not long after the government released its ERF green paper. 

*The author owns shares in CO2 group.