As discussion increases over the role of domestic and international carbon credits in Australia, in this update, we present our outlook for supply of Australian carbon credit units (ACCUs) through to 2030.
Analysis maps total volume of supply, and estimated offset prices, based on forecast demand from entities covered by the NEG and safeguard schemes, providing an initial price guide for covered facilities and a reference point for offset developers active in the ERF and secondary market.
Key findings include:
- While international carbon offsets have historically been perceived as “low cost”, we anticipate a steep curve for units in markets such as Europe and California – and potentially China – with carbon prices likely to grow to A$30-120 in 2030, reflecting the higher ambition of these schemes.
- Coupled with the limited role of Kyoto units after 2020, domestic carbon offsets may be the marginal source of emissions reductions in the Australian market.
- Modelling indicates that Australia may have a large volume of “low-cost” ACCUs available between $4-10/t, underpinned by low-cost energy efficiency activities, or so-called “anyway projects”. These are likely to be commercially attractive to buyers outside the administrative complexity of the ERF.
- This supply is able to fulfil demand under the government’s National Energy Guarantee (NEG), with prices potentially rising to $35/t under our upper bound demand scenarios as greater demand potentially comes online under the safeguard scheme.
- We see limited opportunity for low-cost ACCUs to be “exported”, with many crediting methods – notably energy efficiency, facilities, mining, oil and gas – likely to fall foul of stricter international additionality rules applied for out-of-state offsets in international markets.
- Should crediting methods be tightened to restrict anyway projects, this would have a significant impact on the merit order of Australia’s ACCU curve, removing low-cost units from the available supply pool, yet improving the quality of emissions reductions in the domestic market. Under such a scenario, ACCU prices may step up quickly in line with modelled demand estimates.
- Four clear price bands are clearly apparent within the curve, a “low-cost” level encompassing energy efficiency and “anyway” projects up to $5, a “low-moderate” price level up to $20/t (attributed to cost saving projects, regenerative farming and mallee plantings); supply from “medium cost” projects such as wind energy and avoided re-clearing of vegetation up to $60/t; and “higher cost” land use projects up to $100/t (such as environmental plantings and assisted natural regeneration).
- This is likely to provide Australian policymakers with significant flexibility in designing local policy, such as the NEG or Safeguard scheme, that is able to meet “least cost” objectives while keeping compliance costs low for business, and appealing to the environmental lobby’s desire for local de-carbonisation to 2030-50.
Our full market study “An Outlook for ACCU Supply and Prices in Australia to 2030” is available to subscribers of our Research Insights service. The full report consists of the following elements:
- Analysis of international carbon markets and price expectations
- Analysis of potential demand for ACCUs in Australia through to 2030 under the National Emissions Guarantee and Safeguard Mechanism
- Outlook for ACCU supply (t/CO2e) and prices ($/t) in Australia
- Underlying modelling outcomes (.xls)
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