The Australian carbon market is navigating a period of transformation as recent market reviews and upcoming Safeguard Mechanism deadlines reshape the landscape. A key development is the Climate Change Authority’s review of the Carbon Credits (Carbon Farming Initiative) Act 2011, providing recommendations aimed at enhancing the integrity and effectiveness of the market. A recent announcement reiterated that the Australian Carbon Credit Unit (ACCU) scheme is fundamentally well designed, maintains a high level of integrity and delivers real emissions reductions across the country.
The combination of recommendations informed by the review, and impending Safeguard deadlines is not only influencing carbon credit prices but also prompting businesses to reassess their strategies for meeting emissions targets.
In this dynamic environment, understanding the evolving impacts of these factors is crucial for staying ahead in the race towards Net Zero. TEM’s Head of Wholesale, Ian Dobbs, monitors the market closely and shares below his reflections on these factors and how they are influencing the ACCU market now and into 2025.
Oversupply of ACCUs likely to persist
The ACCU market is experiencing an oversupply of credits, expected to continue for the next few years. The balance of current ACCU account holdings, combined with existing supply, is likely to provide enough credits to meet forecasted demand up until approximately 2027. However, the market can still make gains over this period as increasing buying activity from Safeguard entities, coupled with the collision of the Climate Active reporting deadline, predicts a likely shift in demand.
Safeguard Mechanism demand drives gradual price gains
Despite the oversupply, we are currently seeing heightened activity among carbon market participants, particularly as compliance entities prepare for stricter emissions baselines, increasing the demand for ACCUs, and pushing prices above the tight range observed since late March.
This Safeguard demand is expected to continue to grow between now and the March 2025 deadline, underpinning further gradual gains. By the first quarter of 2025 we could see ACCUs back above $40.00. Voluntary demand remains a small percentage of the market and is unlikely to grow much over FY25.
Generic ACCUs dominate trade volume
Generic ACCUs are the preferred choice for many compliance entities, making up 75% of recent trading volume, with Human Induced Regeneration (HIR) projects making up 5-20%. The price difference between generic, generic excluding Avoided Deforestation (no AD), and HIR ACCUs remains narrow, with all three trading within a $0.50-$0.60 spread.
In terms of recent turnover, July was a low month trading only 1.2m units in the reported market, vs 2.144m traded in June. We expect to see the monthly traded carbon credit volume pick up again towards 2.5m units by December.
As we approach 2025, TEM remains on the pulse of these market dynamics, ensuring our customers are well-positioned to navigate this evolving landscape and capitalise on emerging opportunities.
If you’d like to discuss how these market drivers may impact you and your business, please contact us.
Important information
This information has been prepared by Tasman Environmental Markets Australia Pty Ltd (TEM), a corporate authorised representative (ABN 97 659 245 011, CAR 001297708) of TEM Financial Services Pty Limited (ABN 58 142 268 479, AFSL 430036). This material is for general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation, or needs. While we believe that the material is correct, no warranty of accuracy, reliability, or completeness is given, except for liability under statute which can’t be excluded. Before making an investment decision, you should first consider if the information is appropriate for your circumstances and seek professional financial advice. Please note past performance is not a guarantee of future performance.