Carbon Markets

MARKET UPDATE: ERF Exit – Availability of large pipeline of ACCU supply to materially impact prices

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The Minister for Industry, Energy and Emissions Reduction has today announced changes to the operation of the Emissions Reduction Fund (ERF), providing project developers with the option to exit their ‘fixed delivery’ carbon abatement contracts (CACs) with the Commonwealth. The change will provide developers with the opportunity to access higher prices in the secondary market, currently trading at $46.75/t, by redirecting forward ACCU deliveries away from the Commonwealth to fulfill growing private sector demand – subject to the availability of higher priced bids.

Fixed delivery ACCUs – currently ‘locked away’ from the secondary market (to be delivered to the Commonwealth under the ERF) – are the largest source of supply in Australia, making up about 68% of all issuance in 2021-22. As a result, should a proportion of this supply be made available to the market it has the potential to materially impact ACCU price development, eroding the demand support provided by investors and voluntary participants over the past 12-months.

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