Carbon Markets Outlook

OUTLOOK: The Chubb Review – Australian carbon offset price, supply and demand outlook

At the end of December, the Independent Review of Australian Carbon Credit Units (ACCUs), led by Professor Ian Chubb (the Chubb Review), will provide advice to the government on Australia’s carbon crediting framework, including the integrity of key carbon farming methods and current governance arrangements.

The Review was announced in response to criticism from former Chair of the Emissions Reduction Assurance Committee (ERAC), Professor Andrew Macintosh, that credits generated under Human Induced Regeneration (HIR), Avoided Deforestation (AD), and Landfill Waste Gas methods do not represent “real and additional” abatement.

In recent weeks, some stakeholders have suggested that any move to restore integrity to the ACCU market would lead to a marked reduction in ACCU supply, triggering a sharp increase in ACCU prices and associated compliance costs under the Safeguard Mechanism. This prompted calls for a price cap under the Safeguard Mechanism to protect industry from the impacts of a faster ‘transition to integrity’.

While potential remains for the Chubb Review to trigger a material contraction in ACCU supply where radical changes are implemented, analysis indicates that a more nuanced impact on the supply landscape may be likely, with possible reductions in crediting expected to be offset by the annual growth profile of ACCU issuance, and the reality that many ‘at risk’ projects are nearing the conclusion of their crediting periods (Landfill Gas and Avoided Deforestation).

Combined with the current availability of ACCUs in the forward market (under the ERF exit program), modelling suggests that this dynamic may reduce the risk of a possible sharp increase in prices, subject to how material any supply contraction may be, reducing the need for any regulatory price cap (or collar) under the Safeguard Mechanism, unless more unexpected, radical changes are made.

More broadly, the speed and scale of internal actions to reduce GHG emissions by high emitting facilities covered by the Safeguard Mechanism continues to have a more material impact on our forecast market prices, with positive sentiment and early compliance contracting anticipated to lead to an uplift in prices from December as facilities begin to sure up access to offsets, until capital investments in emissions reductions and industrial behaviour begins to guide longer term price development.

In this Carbon Market Outlook, we take a closer look at the potential impact of the Chubb Review on ACCU supply. In doing so we present our long-term expectations for ACCU prices and supply-demand fundamentals over a 10-year rolling horizon, accounting for the impact of tighter policy settings under the Commonwealth Safeguard Mechanism framework, and scenarios for market development.

Restricted Access

This is a subscriber report. Please login to access this content.

Tour our EnergyIQ platform

RepuTex research insights and market data is published via our EnergyIQ platform.

Click below to learn more about our services.

Sign up for regular insights

LATEST UPDATES

  • Carbon Markets

    UPDATE: Differentials for premium ACCU methods show greater convergence, yet intra-method spreads remain wide

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Our latest Carbon Weekly has now been published, reviewing activity in the Australian and international […]

    Research Insights | July 8th, 2024
  • Carbon Markets

    MARKET WRAP: Total volumes slow as derivatives activity falls from record highs, buyers lead prices higher

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Total traded volumes across spot and forward markets fell from 2.8 million to 2.2 million […]

    Briefings, Research Insights | July 6th, 2024
  • Carbon Markets Outlook

    OUTLOOK: Long-term Australian carbon price, supply, and demand outlook (ACCUs and SMCs)

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Our latest Carbon Market Outlook (CMO) for the Australian carbon compliance and voluntary markets has […]

  • Carbon Markets

    UPDATE: ACCU prices flatline on limited spot trading, financial year gains muted, but options volumes surge

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Our latest Carbon Weekly report has now been published, reviewing activity in the Australian and […]

    Research Insights | July 1st, 2024
  • Carbon Markets

    Notice: Welcome to the new RepuTex EnergyIQ platform / extended ACCU datasets

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    RepuTex has today published an update to its EnergyIQ platform, including expanded data coverage, visual […]

    Notices, Research Insights | June 28th, 2024
  • Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone