A commodity market analyst has issued another warning to farmers about the risks associated with the carbon market, following the recent steep drop in value of Australian carbon credit units (ACCUs).
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As a result of 2.5 million carbon credits being dumped on the market in a relatively short period of time, the value of ACCUs recently fell by 20 per cent in the space of just one month.
When quizzed over what advice he had for those participating in the carbon market, Episode 3 founder and director Andrew Whitelaw took the opportunity to warn farmers again about the many risks associated with the "immature carbon market" as well as future issues that could arise from selling their carbon credits too soon.
Labelling the carbon market as a "highly changeable market" that was "high-risk", Mr Whitelaw said it was also a very hard market to understand.
"I think there's a lot of salesmanship going on," Mr Whitelaw said.
"Nothing is permanent in the market at the moment, and the fact that things have changed so often and so quickly already is a concern.
"If you were trading wheat on a futures exchange for example, the rules of that futures exchange have probably not changed that much over the past 100 years.
"Whereas in the carbon market everything is changeable and I don't think many farmers know what they're signing up for."All you have to do is look at the end of the previous government, when people were able to sell their credits for a second time, even though they'd already sold them.
"No one really understands the carbon market that fully, and as soon as you do understand the market - it changes and the rules change."
The carbon marketplace consists of both a voluntary and mandated market.
"Let's say you're flying from Perth to Melbourne and the airline asks you if you want to offset your carbon emissions - if you tick that box, you are participating in the voluntary market," Mr Whitelaw said.
However if a global recession were to occur in the near future, due to cuts in spending, the likely withdrawal of these people and companies from the marketplace would no doubt have an impact on the carbon market.
More largely though, the carbon market is a mandated market which is reliant on government intervention.
This intervention relates to government requirements for various corporations and industries that create greenhouse gas emissions to buy ACCUs in order to help offset their emissions.
"For example, if you're a coal power station and you're putting greenhouse gasses into the atmosphere, the government will say you have to offset your emissions," Mr Whitelaw said.
"Hypothetically, if that station is producing 100,000 tonnes of carbon, then they would have to buy 100,000t of carbon credits to cross that off.
"In the mandated market you have to buy those credits, no matter what they cost.
"The idea behind this is that over time those credits get too expensive, so those coal power stations become too hard to run and other alternate forms of energy become cheaper."
However, Mr Whitelaw said the downside of the mandated market was that government decisions had the potential to change the market's supply and demand variables in "a flick of a switch".
A likely example of this would be a government decision to change which industries are required to pay for their emissions.
"I wouldn't be surprised if in the next 15 years Australia's farmers have to account for their emissions on farms," Mr Whitelaw said.
"We've seen that happen already in New Zealand and in other parts of the world, and I think that will happen here too... so farmers should be very very careful if they are thinking about selling their ACCU credits, as they might need them later on."
Taking all these factors into account, Mr Whitelaw said his advice to farmers remained the same.
"Take a long-term approach," he said.
"You won't make much money from selling their ACCUs at the moment anyway."The biggest risk is that you sell them now for just $28, but then you might need them in the future when they could cost $60 or $70 or $80 or $300."
