Carbon Markets Outlook

OUTLOOK: Long-term Australian carbon price, supply and demand outlook

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The price of Australian Carbon Credit Units (ACCUs) has risen 11 per cent calendar year-to-date, reaching a record high of $18.50/t in Feb-Mar on momentum that the federal government will adopt a more ambitious net-zero emissions reduction target ahead of the 26th UN Climate Change Conference (COP) in November.

The recent surge in prices suggests that Australian carbon offsets are undergoing a fundamental repricing as the market begins to account for a more ambitious net-zero emissions goal, despite the absence of a policy announcement from the government.

The adoption of a net-zero target will be broadly supportive for ACCU contract prices, underpinned by increasing demand for offsets from voluntary and compliance market participants. Forward prices are, however, subject to the prioritisation of internal abatement opportunities (emissions reductions) over the sourcing of external abatement (offsets), with potential for lower prices should companies focus on internal emissions reductions to more permanently manage their carbon compliance risks.

In this Market Outlook, we present three scenarios for ACCU contract price development, supply, and demand from 2021-30. Analysis assumes the adoption of a net-zero emissions target implemented for industry via the ‘safeguard mechanism’.

Specifically, emissions baselines for covered facilities are set to decline to FY30, aligning to net-zero emissions in 2050. Companies are assumed to face an annual emissions reduction task, with the prioritisation of internal versus external abatement differing in each scenario, translating into a range of forward price outcomes.

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