Carbon Markets Outlook

OUTLOOK: Long-term carbon price, supply and demand outlook (Q4 FY19-20)

As the federal government considers major changes to its climate policy framework, including crediting Safeguard Mechanism facilities for emissions below their baselines and a long-term emissions target ahead of COP 26, the long-run price of Australian Carbon Credit Unit (ACCU) offsets remains a key signal for investment in large-scale emissions abatement, and a benchmark for price formation of potential new Safeguard Mechanism Credits (SMCs).

In particular, the Paris Agreement is a key driver of our long-term offset price expectations, with the long-run price underpinned by the cost and availability of external offsets to meet a 1.5-2°C carbon budget between 2015-50.

In this outlook, we model Australia’s long run carbon offset price from 2020-50 to achieve and maintain carbon neutrality. Analysis considers a Base Case target trajectory consistent with the current policy. Scaled-up target scenarios are also considered, including net-zero emissions by 2040 and 2050, reflecting ‘high’ and ‘medium’ offset price scenarios in line with the Paris Agreement, and a ‘low’ offset price forecast in line with current policy.

As policymakers and large-emitting companies seek to make informed long-term decisions to reach net-zero emissions, modelling provides an important reference point for future investment and policy decisions and the development of the carbon market under more aggressive action on climate change.

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