Carbon Credit Units
Until now the price of Australian Carbon Credit Units (ACCU) has been tied to a fixed contract with the Commonwealth. However, a recent change in rule has enabled carbon traders to sell units at a higher open market price. This has caused the price of ACCUs to drop by 30%.
In an effort to protect the future of Australia’s carbon.credit market, the Federal Government has entered into contracts to create ACCUs. These credits are sold on the national environmental commodity market. They are awarded to eligible projects, which can be used to offset the emissions of one tonne of carbon dioxide equivalent. This scheme seeks to incentivize companies to reduce their environmental impact by cutting their carbon footprint.
ACCUs are a form of carbon offsets that are purchased by the Federal Government to meet its obligations under the climate policy. They can be sold into the reported spot market segment or into advance contracts. This has opened up the opportunity for large entities to contract in large quantities of ACCUs. The Clean Energy Regulator’s most recent quarterly report shows that more than 8.7 million ACCUs have been reported in the secondary market in the first half of 2022. This is up from approximately 8 million reported in the first half of 2021.
The Price of Australian Carbon Credit Units (ACCU) Has Dropped by 30%
In addition to the supply that has been contracted by the government, there is also a significant volume of non-reported transactions in the secondary market. These include fixed delivery contract prices as well as offtake agreements.
The market for ACCUs has sunk in recent weeks after claims that the methodology for the carbon pricing scheme is flawed. A former head of the Emissions Reduction Assurance Committee, professor Andrew Macintosh, said that the market was largely a “sham.” He stated that many of the carbon credits approved by the government were not real reductions in greenhouse gas emissions. He also claimed that the ERF is wasting taxpayers’ money by acquiring junk credits.
Some speculators are betting the biggest emitters will need ACCUs to comply with a Labor plan. They believe the new government will support demand for the crediting mechanism by implementing policies that promote carbon emission reductions.
Some of the largest miners and metal processors have had to purchase ACCUs in order to surrender to the government. This has helped to stabilize the price of the units, although many remain concerned about the lack of additionality in the scheme. The Clean Energy Regulator says that its contracts for the sale of ACCUs are increasing and it expects to issue more than 18 million in the calendar year 2022.
The price of ACCUs has recovered since the April slump, with the spot price for the units stabilising at $31/t. However, there is still room for buyers to return to the market. Currently, there are about 260 entities that are subject to the scheme. Several businesses have sought legal advice regarding the intervention by Taylor, but there is little legal protection for investors who choose to cash in early.