Learning Materials

What is an Australian Carbon Token(BCAU)?

Learning Materials

What is an Australian Carbon Token(BCAU)?

More than half of the top 100 ASX listed companies have pledged net-zero carbon emissions by 2050. Globally, McKinsey estimates that demand for voluntary carbon credits could increase x15 by 2030 and x100 by 2050. The number of Australian carbon credits voluntarily cancelled in Q1 2022 increased 62% YOY.

BetaCarbon gives retail investors access to the Australian carbon market for the first time from $1 through its Australian Carbon Token (BCAU), a tokenised version of an Australian carbon credit.

How can carbon credits be an investment?

Carbon credits are used by companies to compensate for their carbon emissions. However, they can also be bought by investors who expect the price to increase over time and can then sell the credits to those companies looking to offset their emissions. In this sense carbon is no different to other commodity, such as gold, real estate or wool, all utilities which can also serve as investments.

Because of their limited supply and historical price appreciation, carbon credits are garnering interest from investors interested in new ways to diversify their portfolios.

But what exactly is an Australian Carbon Token?

One BCAU represents 1kg of prevented, avoided or reduced carbon emissions. For each of these kilos, BetaCarbon holds the underlying Australian Carbon Credit Unit (ACCU).

Australia’s Clean Energy Regulator issues ACCUs to the projects after determining that the required volume of carbon emissions was reduced or avoided.  BetaCarbon purchases these carbon credits and creates corresponding digital tokens, which it issues to retail investors, who can buy or sell them anytime.

Is an Australian Carbon Token the same as carbon credit?

BCAUs are not carbon credits, but rather are tokenised versions of carbon credits, created to allow retail investors to get involved in the Australian carbon market from $1.

Under the terms of the token-holder agreement, BetaCarbon can only mint BCAU tokens equal to the number of ACCUs it holds. Once these are sold, BetaCarbon needs to acquire further ACCUs in order to release more tokens. This process ensures that BCAUs are notionally backed by real carbon credits.

By holding BCAUs, investors can reduce supply and therefore impact the price of carbon credits, with the aim that over time it becomes more expensive for big businesses to pollute.

What’s the difference between an Australian Carbon Token and a carbon offset?

A BCAU is a digital token based on an ACCU, whereas a carbon offset is a carbon credit that has been retired, with its value expunged when the purchasing company has offset its emissions so that it cannot be resold.

Why is the Australian Carbon Token different from other tokens?

BCAU is based on a regulated carbon credit - the ACCU. These ACCUs are financial products administered by the Clean Energy Regulator. To earn ACCUs, a project must be registered with that body and follow an approved methodology.

ACCUs have different values based on the quality of the carbon credit, owing to a range of factors. BetaCarbon invests in a portfolio of ACCUs, which collectively inform the price of BCAU.

How could people invest in the Australian carbon market previously?

Before BetaCarbon, only wholesale investors could participate in the Australian carbon market. Since the carbon market has many barriers to entry – including arduous accounting and high capital requirements – working through a broker may be an attractive option for wholesale investors.

Why can’t retail investors or small businesses purchase ACCUs?

To buy a carbon credit, participants need to register with the Australian National Registry of Emission Units and go through rigorous account opening requirements, background checks and meet a high minimum parcel size.

Further, as there is currently no exchange to trade ACCUs, price transparency is poor, with the market only accessible to wholesale market participants via over-the-counter (OTC) trading.

Through its BCAU, BetaCarbon has provided a way for everyone to participate in the carbon markets through blockchain.

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