UPDATE: Short- and long-term ACCU spot price impacts of COVID-19

International carbon prices have tumbled amid fears that a COVID-19 induced economic downturn will curb industry demand for carbon allowances, causing a heavy sell-off by investors. In Europe, EUA prices fell over 11 per cent last week, referred to as Black Monday, reaching a low of €15.24/t (A$28), down from €29.94/t (A$54) in mid-July 2019.

Locally, the Australian Carbon Credit Unit (ACCU) spot price has continued to trade between $16.50-17/t since late-February, at low volumes, down from a four-year high of $17.50 in December-19. We view the local ACCU market as largely inoculated from the economic consequences of COVID-19, with reduced industrial output unlikely to translate into lower demand for carbon offsets given the current design of the Commonwealth’s Safeguard Mechanism.

Under the safeguard scheme, facilities are issued an “emissions baseline”. Rather than decline over time, however, baselines are set in line with forecast production and emissions intensity, and may be updated annually to reflect actual production. Given baselines are flexibly designed to align with production, the scheme does not create accountability for large facilities to reduce emissions, or offset emissions growth. Unlike the EU ETS, any growth (decline) in emissions will therefore not exceed an emissions baseline or trigger