Cost and availability of offsetting LNG emissions in Western Australia

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Greenhouse gas (GHG) emissions from LNG production in Western Australia are projected to grow to around 30 Mtpa of CO2e  – an increase of approximately 300 percent on 2005 LNG emission levels, with current projects projected to increase Western Australian state-wide emissions to around 44 per cent above 2005 levels as output continues to grow.

The Western Australian Environmental Protection Authority (EPA) is currently reviewing the adequacy of conditions implemented for Chevron’s Wheatstone project, along with conditions applied to the Gorgon development. RepuTex has been engaged to model the ‘type’ and ‘price’ of carbon offsets that could be available within Western Australia should a local offset industry be developed, and evaluate the economic benefits of local investment.

Modelling aligns offset supply with illustrative annual offset demand at three reference levels, determining the potential availability, cost, and co-benefits of abatement in line with our Marginal Abatement Cost (MAC) model. Key findings include:

  • While issuance of Australian Carbon Credit Units (ACCUs) in Western Australia is currently low, representing around 10 per cent of national supply under the Emissions Reduction Fund (ERF), we anticipate a quick expansion in regeneration projects, with ACCU issuance likely to double in less than two years.
  • The total potential supply of offsets from Western Australia’s rangelands, however, is much larger still. Though a combination of expanded methodologies, greater certainty, and higher prices, we estimate Western Australia rangelands alone could generate around 4.5 million ACCUs p.a. by 2030.
  • There is a similar potential to create tens of millions of additional offsets per annum though a wider diversity of renewable energy, agriculture and vegetation management activities in Western Australia. Analysis indicates that Western Australia therefore has ample abatement to meet offset demand within the state, with potential to supply in excess of 80 Mt of abatement per annum.
  • Under a Low demand scenario (15 Mtpa of abatement), modelling suggests a carbon offset price could settle at around $15 per tonne, with considerable supply of around 5 to 6 Mtpa of abatement is available at little to no net-cost for agricultural (crop and livestock) efficiencies, should policy be designed to overcome market inefficiencies to unlock abatement opportunities.
  • A Medium Scenario for 30 Mtpa of emissions reductions would approximately triple investment in offset projects, with offset prices modelled to grow to $50 per tonne as ‘low-hanging’ abatement is contracted, and demand for offsets ‘buys its way up the cost curve’. Under this scenario, investment in renewable energy sector could play a complementary role to ACCU methodologies, supplying around one third of all offsets, while forest and rangeland sectors are modelled to supply larger volumes at slightly higher costs.
  • The midpoint of the Marginal Abatement Cost Curve for Western Australian abatement is modelled to be $40 per tonne. This is competitive against international carbon price benchmarks, with European EUA prices projected to grow to more than A$60 per tonne by 2025 as policy ambition increases.

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