Carbon Markets

ALERT: Australian CO2 spot price breaks through $19/t to new record high

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The price of Australian carbon credit units (ACCUs) continues to break new ground, reaching $19/t on Thursday, a new record high, as the market continues to be buoyed by increasing voluntary activity by large corporate emitters.

RepuTex’s ACCU benchmark price index, which compiles aggregate ACCU transaction data from market participants, is up 15% calendar year-to-date, with current prices reflecting a new higher pricing regime following the government’s broad statement of support for a net-zero emissions target in early February. Since that point, prices have climbed from $16.50/t to breakthrough $19/t.

While spot market action is underpinned by a number of small transactions (around 10-15,000 units), forward contracting between project developers and large corporates has surged year-to-date, with the majority of transactions occurring off-market as high emitting companies seek to source credits to sure up longer term supply in support of carbon neutrality goals, and their longer-term compliance risks.

As noted in our earlier update, forward contracts continue to be struck at significant premiums to current spot prices, with a forward call option of $25/t for Feb 2023 recorded this week, while a larger number of forward transactions for delivery between 2025-30 continue to be struck for prices in excess of $25/t, reflecting the eagerness of large corporate buyers to lock in supply at prices which continue to represent value relative to our more ambitious forward curves (and surging prices in other markets).

While direct ACCU contracting is heating up, a limited number are being (immediately) voluntarily cancelled, with just 292,451 cancelled calendar year-to-date (4.6% of total) versus over 5.9 million CERs (95.4%) under the Kyoto Protocol. Over 3m CERs have been cancelled by Australian companies in the last month alone, with CY21 CER cancellations already 20% higher than total CY20 cancellations.

This suggests high-emitting companies continue to favour low-priced international offsets to support their near-term carbon neutrality goals – while these units remain available – while more expensive forward ACCU contracts are primarily being used to sure-up longer term supply to support future compliance risks, rather than being used for immediate cancellation.

This reflects the higher forward value for ACCUs as a compliance tool, versus cheaper CERs, which are likely to have only a short-term shelf life. As noted in our latest Market Outlook, moves by the government to tighten the ambition of Australia’s emissions reduction target will continue to supportive for ACCU offset prices over time. We continue to forecast price increases over the medium- and longer-term, with market direction ultimately expected to align with our scenarios for the scale up of emissions reduction targets (1.5-2 degrees) under the Paris Agreement.

To view our latest Market Briefing (recording) on recent dynamics in the Australian carbon market, including current spot and forward contract prices, along with current voluntary cancellation trends, please click here.

To access our latest spot price and long-term price forecasts please login to EnergyIQ.

If you have any questions or comments, contact our Client Services team or you can take a tour of our full EnergyIQ platform via this link.

Kind Regards,
The RepuTex Team
Australian Electricity Markets

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