ANALYST UPDATE: Safeguard leniency to dilute ACCU demand

In our earlier Market Update, “ERF Safeguard Mechanism – Toothless Tiger…or Hidden Dragon?”, analysis indicated that approximately 85 facilities would be likely to face a compliance obligation under the proposed ERF Safeguard Scheme, derived largely from existing Metals, Coal Mining, Oil and Gas, and Transport facilities. For these firms, demand for Australian Carbon Credit Units (ACCUs) was likely to lead to the creation of a small compliance market, with ACCUs to be the marginal source of emissions reductions into the market. Following the release of draft rules on Wednesday, new amendments to enable companies to further adjust their baselines are likely to erode compliance demand, specifically from the Coal Mining and Oil & Gas industries. With minimal compliance obligations on companies, we project emissions covered by the safeguard scheme will grow by around 20 per cent through to 2030. This suggests a significant disconnect between emissions growth and the government’s new post-2020 emissions target, while in parallel, the delay of emissions reductions indicates that any future compliance market may be running-to-stand-still, with any compliance scheme likely to face a more acute emissions reduction slope to meet the new 2030 emissions target. In this Update, we step through the key