Impact of Carbon Abatement Contracts on Rural Property Values. Shaun Salter AAPI Certified Practising Valuer Fraser Valuers Pty Ltd

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Collin Perry
6 years ago
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1 Impact of Carbon Abatement Contracts on Rural Property Values

2 Why is consideration of the impact on property values by Carbon Abatement Contracts important? You want to know that the benefits of entering into a Contract are not going to be outweighed by potential losses in productivity and underlying asset values. Every Carbon Contract is registered to the properties Title. For a Contract to be registered, if the property is mortgaged, your Bank will need to consent to the registration of the Contract. Depending on your financial position, your Bank is likely to want to know what impact the Contract is going to have on your cashflow and their security position. Most Banks have the expertise to determine the impact on your cashflow, however often do not have the expertise internally to assess the impact on their security position so they look to engage Valuers to make this assessment on their behalf.

3 What is the impact of a Carbon Abatement Contract on your property value? At this point nobody really knows!!! Property values and valuations are typically based on market data. i.e. what other properties in the area have sold for and how they compare to the subject property. We are not aware of any properties that have sold with the current form of Carbon Contracts in place (i.e. contracts with ongoing income streams). We are aware of sales of properties that sold post receipt of up front carbon payments. These sales had up to 20% locked-up by the carbon however indicated limited reduction in value. However these sales occurred in 2006 and 2007 when the market was far more active than it is currently. We do know that every situation is different and Carbon Contracts will influence properties differently.

4 In the absence of sales data, how do we determine the impact on Property Values? We, as best as possible, view a property as it would been seen by the market. To do this, we have developed a valuation methodology which takes into consideration the positive and negative impacts of a Carbon Abatement Contract. This methodology has been developed in conjunction with major Banks and a large project proponent. As far as we are aware, we are the only valuation firm in Queensland to develop a methodology specifically for the assessment of Carbon Contracts on rural properties.

5 There are the main components our Methodology considers; The value of the underlying property. The value of the income stream from the Carbon Contract. Other indirect factors.

6 What are the impacts to the underlying property value? What will the reduction in carrying capacity be over time? Type of country and differences in carrying capacity between pulled and a full timber cover. Increased management and mustering costs due to increasing tree cover often in several different areas on the property? Will additional fencing / trap gates / water be required to assist in ease of property management? What is this likely to cost?

7 What is the value of the income stream from the Carbon? What is the projected income per year? How much is the upfront payment and what is the income stream over the years? Income stream reduces over time as trees mature. What is the overall term of the Contract? What is the contracted carbon price and what is the fixed price term? What are the income risks? Fire. Locusts. Who is the Contract with? Federal Government? BP? Other? Reducing value over time.

8 Are there any other factors to consider? Diversity of income streams Sheep / Cattle / Goats & Carbon. Carbon Farming.

9 So Will having a carbon project on your property influence its value in the long term? Yes, it is likely that it will. Will that impact be positive or negative? Every situation and property will be influenced differently. In general, any change in value may depend on how an owner chooses to utilise the income stream from the carbon program. If the cash flow or part thereof from the carbon sales is not re-invested in the property, a reduced value over time is likely. If the cash flow or part thereof from the carbon sales is re-invested into the property, it is possible a property may maintain or even increase in value.

10 The Future Where to from here? This is a rapidly evolving space. At this point in time there appears to be a lot of positives. Knowledge around Carbon is improving as we all learn more. Banks, as always, are cautious with new ventures / industries. However our experience suggests they are becoming more comfortable. Will a change in Government at Federal level change the potential to sell carbon in Australia? Possibly a time gap between Carbon trading / selling mechanisms. Will the price stay at its current level?

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