Name: Unlocking rail decarbonisation with Australia's carbon market
Uploaded: 2023-11-03T02:27:24.611Z
Duration: 359.17
Description: Vivek Dhar discusses significant changes in Australia's carbon market over the past 18 months, shifting from voluntary to compliance demand. He addresses challenges in the rail sector's decarbonization journey, potential competition with road transport, and the evolving nature of the carbon market.

Vivek Dhar 2.mp4

Vivek Dhar.vtt

Subtitles

{{00:00:12}}
So look, when we talk about what's
happened with Australia's carbon

{{00:00:16}}
market, we've seen dramatic changes,
particularly over the last 18 months.

{{00:00:21}}
What we now see is a market that
was primarily run by voluntary

{{00:00:25}}
demand, now quickly shifting over
to a market where compliance demand

{{00:00:29}}
is going to be a very big deal.

{{00:00:31}}
And this is where it
involves the rail sector.

{{00:00:34}}
So we are seeing facilities across
Australia, 219 of them, that

{{00:00:39}}
emit more than 100,000 tonnes
of CO2, of scope one emissions.

{{00:00:44}}
They now have to meet a threshold
of decarbonisation in terms of

{{00:00:49}}
emissions intensity reduction over
the next seven financial years.

{{00:00:53}}
And that is going to be quite an
onerous ambition and if they don't

{{00:00:59}}
meet that with on-site reductions,
we see the compliance market now

{{00:01:03}}
driving demand for carbon credits.

{{00:01:14}}
So for now it impacts the big end of town.

{{00:01:16}}
So the facilities that emit more than
100,000 tonnes of Scope 1 CO2 emissions.

{{00:01:22}}
But it effectively puts in a price.

{{00:01:24}}
A price that if you don't manage
to achieve on-site reduction,

{{00:01:28}}
that's what you have to pay.

{{00:01:30}}
So it sets a market price now
that is going to determine how

{{00:01:34}}
you approach your decarbonization.

{{00:01:36}}
So there are penalties for
not meeting your obligations.

{{00:01:39}}
And in that you naturally have the
conversation that if those carbon costs

{{00:01:43}}
are high enough, you then have technology
that becomes increasingly more lucrative

{{00:01:47}}
because you have a cost to compare it to.

{{00:01:56}}
So some of the issues you see in terms of
decarbonization is across, it's not just

{{00:02:02}}
going to be the rail sector that's going
to adopt, you know, a unique technology.

{{00:02:06}}
It is going to have to wait for technology
across different sectors to really

{{00:02:11}}
become economic, whether that's battery
electric, whether that's hydrogen.

{{00:02:16}}
And so you are exposed to the supply chain
in terms of that decarbonization journey.

{{00:02:21}}
Now equally those technologies
increasingly become incentivized by

{{00:02:25}}
a number of different sectors other
than rail because they're going down

{{00:02:29}}
their own decarbonization pathway.

{{00:02:31}}
So the carbon market really galvanizes
that push for technologies that

{{00:02:36}}
Rail alone wouldn't justify, but you
effectively get this economies of

{{00:02:40}}
scale argument as you put a carbon
price across the biggest emitters.

{{00:02:44}}
And so that's what the carbon
market tries to achieve.

{{00:02:54}}
Sure, so look, the safeguard mechanism,
it applies to facilities across

{{00:02:59}}
Australia that emit more than 100,000
tonnes of scope 1 CO2 emissions.

{{00:03:05}}
In terms of what has been asked for from
those facilities is to reduce emissions

{{00:03:11}}
intensity by about 34 to 35 percent
over the next seven financial years.

{{00:03:17}}
Now this is very ambitious.

{{00:03:19}}
If you look at what the electricity
sector in the east coast of Australia

{{00:03:23}}
achieved from 2014 to 2021, they
only managed to reduce emissions

{{00:03:27}}
intensity 24 to 25 percent.

{{00:03:29}}
So what is being asked for so many
different facilities that have such

{{00:03:33}}
different technologies to decarbonize?

{{00:03:36}}
It is going to mean that we are going
to see the carbon market evolve because

{{00:03:40}}
we think on-site reductions of that
magnitude will just be too challenging to

{{00:03:44}}
achieve by yourself and therefore buying
carbon credits to make the shortfall is

{{00:03:50}}
how this market will evolve over time.

{{00:03:59}}
So look, the rail industry is now
caught, well the larger entities have an

{{00:04:05}}
emissions reduction objective naturally
now set by the safeguard mechanism.

{{00:04:10}}
So reducing emissions intensity
by that 34, 35 percent over

{{00:04:13}}
the next seven financial years.

{{00:04:15}}
The biggest challenge for me when
I talk about rail is what are

{{00:04:18}}
you competing with which doesn't
sit in the safeguard mechanism?

{{00:04:22}}
And namely that's road.

{{00:04:24}}
So we know that rail is less carbon
intensive, but it is paying a

{{00:04:29}}
penalty in terms of carbon compliance
costs because it is larger.

{{00:04:33}}
And so this is one of the challenges
is we know that the most economic

{{00:04:37}}
outcome is for rail to be used more.

{{00:04:41}}
But under the safeguard mechanism,
one of the pitfalls and one that's

{{00:04:45}}
worth watching is this unintended
consequence of encouraging road when

{{00:04:49}}
rail is the one which is the most
decarbonizing in terms of modal transport.

{{00:05:02}}
So look the carbon market is evolving.

{{00:05:04}}
It hasn't yet got to the point
where it's like another commodity

{{00:05:07}}
which is mature and has an exchange.

{{00:05:09}}
And so right now it is still
very much emerging and there's

{{00:05:13}}
not that much liquidity.

{{00:05:16}}
But that will evolve over time.

{{00:05:18}}
We'll have more assurity and the
Chubb review that we saw released

{{00:05:22}}
early this year gave us some
assurances that the framework and

{{00:05:27}}
integrity is essentially sound.

{{00:05:29}}
And as that evolves over time I
think we will get to the point where

{{00:05:33}}
the market or carbon credits will
be traded like any other commodity.

{{00:05:38}}
But this is going to evolve
over time and there's going to

{{00:05:40}}
be big changes to watch for.

{{00:05:42}}
But certainly regulatory
risk is another one.

{{00:05:44}}
Can rules change?

{{00:05:45}}
Absolutely.

{{00:05:47}}
But I think this market is going to
gain enormous traction as we finally

{{00:05:51}}
put a price on decarbonization.

So look, when we talk about what's
happened with Australia's carbon

market, we've seen dramatic changes,
particularly over the last 18 months.

What we now see is a market that
was primarily run by voluntary

demand, now quickly shifting over
to a market where compliance demand

And this is where it
involves the rail sector.

So we are seeing facilities across
Australia, 219 of them, that

emit more than 100,000 tonnes
of CO2, of scope one emissions.

They now have to meet a threshold
of decarbonisation in terms of

emissions intensity reduction over
the next seven financial years.

And that is going to be quite an
onerous ambition and if they don't

meet that with on-site reductions,
we see the compliance market now

So for now it impacts the big end of town.

So the facilities that emit more than
100,000 tonnes of Scope 1 CO2 emissions.

A price that if you don't manage
to achieve on-site reduction,

So it sets a market price now
that is going to determine how

So there are penalties for
not meeting your obligations.

And in that you naturally have the
conversation that if those carbon costs

are high enough, you then have technology
that becomes increasingly more lucrative

because you have a cost to compare it to.

So some of the issues you see in terms of
decarbonization is across, it's not just

going to be the rail sector that's going
to adopt, you know, a unique technology.

It is going to have to wait for technology
across different sectors to really

become economic, whether that's battery
electric, whether that's hydrogen.

And so you are exposed to the supply chain
in terms of that decarbonization journey.

Now equally those technologies
increasingly become incentivized by

a number of different sectors other
than rail because they're going down

So the carbon market really galvanizes
that push for technologies that

Rail alone wouldn't justify, but you
effectively get this economies of

scale argument as you put a carbon
price across the biggest emitters.

And so that's what the carbon
market tries to achieve.

Sure, so look, the safeguard mechanism,
it applies to facilities across

Australia that emit more than 100,000
tonnes of scope 1 CO2 emissions.

In terms of what has been asked for from
those facilities is to reduce emissions

intensity by about 34 to 35 percent
over the next seven financial years.

If you look at what the electricity
sector in the east coast of Australia

achieved from 2014 to 2021, they
only managed to reduce emissions

So what is being asked for so many
different facilities that have such

It is going to mean that we are going
to see the carbon market evolve because

we think on-site reductions of that
magnitude will just be too challenging to

achieve by yourself and therefore buying
carbon credits to make the shortfall is

So look, the rail industry is now
caught, well the larger entities have an

emissions reduction objective naturally
now set by the safeguard mechanism.

So reducing emissions intensity
by that 34, 35 percent over

The biggest challenge for me when
I talk about rail is what are

you competing with which doesn't
sit in the safeguard mechanism?

So we know that rail is less carbon
intensive, but it is paying a

penalty in terms of carbon compliance
costs because it is larger.

And so this is one of the challenges
is we know that the most economic

But under the safeguard mechanism,
one of the pitfalls and one that's

worth watching is this unintended
consequence of encouraging road when

rail is the one which is the most
decarbonizing in terms of modal transport.

It hasn't yet got to the point
where it's like another commodity

And so right now it is still
very much emerging and there's

We'll have more assurity and the
Chubb review that we saw released

early this year gave us some
assurances that the framework and

And as that evolves over time I
think we will get to the point where

the market or carbon credits will
be traded like any other commodity.

But this is going to evolve
over time and there's going to

But certainly regulatory
risk is another one.

But I think this market is going to
gain enormous traction as we finally

Connect Rail

Expert Insight

Vivek Dhar discusses significant changes in Australia's carbon market over the past 18 months, shifting from voluntary to compliance demand. He addresses challenges in the rail sector's decarbonization journey, potential competition with road transport, and the evolving nature of the carbon market.