The Spot Price of Australian Carbon Credit Units
Australian Carbon Credit Units
A carbon credit is a unit of measurement used to quantify emissions of greenhouse gases such as CO2 from industrial activities. The aim of the credit is to reduce those emissions in order to meet national climate targets. They can be purchased and surrendered in the compliance market to help companies meet their carbon pricing obligations, or traded in the voluntary market to achieve environmental outcomes. The credit is most commonly created by agricultural or forestry projects, but can be produced by any project that reduces, avoids, destroys or captures a tonne of CO2.
In the compliance market, a company that wants to meet its carbon price obligation will need to either create its own credits, buy them from another source, or pay for an emission offset. Emissions offsets can be created from forestry, land management, energy efficiency, waste management and carbon capture and storage projects. These projects generate carbon.credit that are then sold to the compliance market, which is overseen by Australia’s Clean Energy Regulator.
The spot price of Australian carbon credit units has stabilised at $31/t as participants find a new equilibrium in the wake of the government’s announcement to allow project owners to exit their fixed delivery contracts early. This will free up forecast large volumes of supply, with many buyers watching closely as to how the market responds.
The Spot Price of Australian Carbon Credit Units
In addition, the new Safeguard Mechanism reforms are expected to add demand for ACCUs. Under the safeguard, companies will be required to either reduce their emissions or purchase a carbon credit to cover up to 50mt of their total emissions by 2030. This will require a significant number of businesses, especially EITEs (Energy, Industrial and Technology), to invest in carbon reduction programs or take on long term ACCU purchases.
National Australia Bank’s recent report on the Australian carbon credit markets found that the spot market for ACCUs is undervalued compared to other global markets. The report argues that the new Safeguard Mechanism will increase demand for the units, driving prices higher by 2025 at the latest.
ANZ said it was expecting demand for ACCUs to rise over the next couple of years as corporate buyers hedge against future liability. The cap on carbon prices at $75 a tonne will “provide a good signal that it is financially viable for companies to buy carbon credits and invest in low emissions production techniques,” ANZ economist Raphael Wood said. He added that the cap would also encourage investment structures to be built around the new prices.
The ANZ report found that investor demand for ACCUs had been increasing throughout 2019 and had ramped up in 2022. “With a large proportion of investor holdings resulting from government contracts, we expect this to continue to exert upward pressure on prices,” it said. But some investors are concerned that the move could cost them money. In an email to shareholders, the managing partner of legal firm Marque Lawyers, said that Taylor’s decision “constitutes a choice by the minister to cause his agency, the Clean Energy Regulator, to breach its contractual rights and thus deliver windfall profits for the investors.”