As Australia ramps up its efforts to combat climate change,the carbon credit market has emerged as a central component of its environmental strategy.
The Australian carbon credit market is witnessing a substantial surge in demand for Australian Carbon Credit Units (ACCUs), fuelled by stricter offset targets for polluting facilities under the Emissions Reduction Scheme. This demand is expected to reach its peak at 31 million units by 2031.
Countries worldwide are acknowledging the imperative of achieving net zero emissions as not just a crucial environmental goal but also a historic economic opportunity.
Countries are also actively vying for strategic advantages through policy frameworks such as the US Inflation Reduction Act and the EU Green Deal. As nations gear up to unveil their new 2035 national climate targets, a recent survey commissioned by the Carbon Market Institute
Australia has pledged to cut emissions to 43% below 2005 levels by 2030 and achieve net zero emissions by 2050, as stipulated in the Climate Change Act 2022.
S&P Global indicates that the Australian carbon market is increasingly driven by Safeguard compliance, significantly influencing ACCU prices. They predict a consistent increase in Safeguard Mechanism credit issuance, from 1 million in 2024 to 11 million by 2034, though Safeguard credits are expected to trade at a lower value compared to ACCUs.
ACCU transaction volumes reached a record high of 13 million in the first quarter of 2023. This surge was driven by increased demand from compliance participants and corporate entities for voluntary purposes. Holdings by Safeguard entities and market intermediaries continued to rise throughout the year.
In 2023, the Generic ACCU price peaked at a year-high of A$39/tCO2-e in April. However, it declined to A$24/tCO2-e in July due to ample supply and lower-than-expected compliance buying.
The market anticipated a surge in compliance buying following the release of the Safeguard draft regulations, but this did not materialise until the last quarter of 2023. Subsequently, the price stabilised around A$31/tCO2-e from September to November, before gradually increasing to A$35/tCO2-e over December to February.
Future Outlook
The market is split on the future trajectory of ACCU prices.The government anticipates that the price of ACCUs will climb to A$60 or higher by 2030.
Demand for ACCUs from Safeguard entities is projected to surge in 2024, driven by the February 2025 deadline for surrendering ACCUs to meet new, progressively tightening emission baselines.
The government forecasts ACCU demand to increase to ninemillion units in 2024, peak at 31 million by 2031, and then decrease to 24 million by 2035. On the supply side, the government projects an issuance of 19 million ACCUs in 2024, with an expected rise to 31 million by 2033, contingent on the development of future ACCU methods.
The government anticipates annual ACCU demand will exceed issuances starting in 2028, before reversing again in 2033. The gap between demand and issuances during this period is expected to be bridged by market participants' accumulated holdings of ACCUs.
These holdings are projected to grow from 38 million units in 2024 to 51 million units by 2026, then gradually decrease to 39 million units by 2032 which is anticipated by the government.
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Author Bio
Mark Phillips, CEO of Carbon Capital Corporation, brings extensive experience in capital markets to the forefront of environmental sustainability. With a keen interest in fostering positive change, Mark is actively engaged in leveraging market mechanisms for the benefit of climate action. Connect with Mark on LinkedIn to explore his unique insights into carbon and environmental markets.
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