Carbon Markets

MARKET UPDATE: ACCU price continues to retreat, making many new ERF projects unviable

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The spot price for Australian Carbon Credit Units (ACCUs) fell a further 18% on Tuesday, closing at $29/t, down 6.40 on the day. Uncertainty continues to weigh on the market in response to the government’s announcement to allow project owners to exit their ‘fixed delivery’ carbon abatement contracts (CACs) under the Emissions Reduction Fund. The ACCU spot price has now collapsed 37% from close of $45.75/t last Thursday, and 49% from a daily high of $57.15/t in late January.

Current volatility reflects a panic response from the market, with participants scrambling to find a new equilibrium amid a structural change in underlying market fundamentals. Over the last six months carbon project developers had been busy lining up a pipeline of new sequestration projects to meet a forecast increase in demand from new corporate net-zero pledges, investor participation, and the conclusion of multi-year monitoring periods under the government’s Safeguard Mechanism. At current spot prices, however, many of these new sequestration projects are no longer viable, translating into an expected pause in new project development.

While Australia has flipped from a seller’s to a buyer’s market, it remains to be seen how much corporate demand will step forward to meet the large demand void left by the ERF. Beyond the near-term, where existing supply will now meet demand, the magnitude of the impact of the government’s supply-side intervention will be highly dependent on matching the price expectations, scale, and timeline of long-term carbon farming projects with new corporate demand. While we forecast that the transition to net-zero emissions will be supportive for ACCU prices, the government’s supply-side intervention will translate into more muted longer-term upside, particularly in our scenarios where newly available supply is not balanced by new demand.

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