This Scenario Analysis report accompanies our recently released quarterly Carbon Market Outlook (CMO) for September/October 2025, modelling alternative price pathways and sensitivities for the development of the Australian carbon market.
Our core scenarios investigate alternatives for the pace and scale of onsite decarbonisation by Safeguard Mechanism facilities – the material driver of medium-term carbon credit demand – by considering an “Accelerated Decarbonisation” timetable (Low price) or “Slow Decarbonisation” (High price) timetable on market development, in support of our Central Case “Progressive Decarbonisation” (Medium price) settings.
Additional policy and market sensitivities are also depicted, changing based on current drivers and themes relevant to supply-demand fundamentals, and price development.
Following the release of the new Savanna Fire Management (SFM) methods, in this report we analyse the price impacts of allowing existing projects to be “backcredited” for historical sequestered carbon.
Specifically, we consider the price impact of SFM backcrediting with upfront issuance (in the first reporting period) per DCCEEW’s exposure draft, along with an alternative “smoothed” scenario, with backcredited units spread over the crediting period.
Findings indicate that, while large volumes of new supply are required to meet forecast rising compliance demand, any large influx of supply carries a delicate balance between market stability and disruption.
In particular, scenarios which inject backcredited units in a short period of time – even with conservative assumptions for transition rates and uplift – are shown to exacerbate the short-term oversupply, materially lowering prices, with knock-on effects for long term supply-side investment and industry decarbonisation. Comparably, smoothed backcrediting could mitigate adverse impacts, and help to improve market stability.
The profile of potential SFM backcrediting, and related sequestration crediting uplift, is therefore highly material for future price development – and the overall health of the Australian carbon market.
