Our latest Carbon Market Outlook (CMO) for the Australian carbon compliance and voluntary markets has now been published.
As a good volume of compliance demand continues to enter the market over Q4 2024 and Q1 2025, we expect Generic / HIR ACCU prices to rise toward first compliance. Beyond this, we continue to see short-term upside constrained by growing ACCU holdings; a healthy issuance pipeline; and shallow initial Safeguard Mechanism baseline declines, which will see compliance demand take 2-3 years to meet current annual issuance levels.
While higher long-term prices will support new supply, we believe the scale of required growth remains a key question for the Australian market, with annual project registrations and issuance growth needing to materially exceed historical rates to meet forecast demand. Our modelling indicates that the market is finely balanced, and increasingly vulnerable to supply- and demand-side sensitivities, such as the timing of large decarbonisation projects – most notably CCS actions within the LNG sector. We consider these sensitivities in our modelling.
In the near-term, these concerns are outweighed by policy risks, with potential for material changes to the Safeguard Mechanism (under regulatory / subordinate powers) should there be a change of government at the federal election. This is balanced by our expectations for increasing ambition under Australia’s updated NDC, and the prospect of a progressive crossbench, with potential for stronger settings under increasing Greens influence.
This quarterly CMO presents our detailed modelling and expectations for Australian Carbon Credit Unit (ACCU) and Safeguard Mechanism Credit (SMC) prices over a 10-year horizon, along with underlying supply-demand fundamentals.
If you have any questions on this report, please contact our Client Services team.
