RepuTex has today launched a new price assessment for Human Induced Regeneration (HIR) Australian Carbon Credit Units (ACCUs) to capture the market value for “project specific” contracting in the over-the-counter (OTC) spot market.
In developing markets such as the Australian carbon market, more representative pricing must be achieved by providing greater levels of transparency. This includes capturing a growing amount of market data from transactions that occur beyond the brokered market which, on average, represents just 30-40% of OTC traded volumes.
Increasing scrutiny of the types of carbon offsets surrendered by corporates has seen demand for project-specific offsets increase, with buyers utilising direct bilateral contracting as they undertake due diligence on project attributes and other volumetric risks, along with counterparty reputation and credit risks.
Separately, carbon credit sellers have become increasingly more selective of buyers, giving preference to counterparties that demonstrate the adoption of net-zero targets, or screening out counterparties from some emissions intensive industries.
Transaction information reported by sell-side and buy-side participants via RepuTex’s daily Survey Panel market engagement process indicates that project-specific HIR ACCUs in the bilateral spot market have commanded, on average, a $3-4/t premium since July 2023 relative to Generic ACCUs, with highs of between $6-8/t.
This reflects buyer preferences for higher integrity HIR projects with specific attributes, such as projects with evidence of historical clearing, baseline tree cover, and adequate rainfall, or projects developed in mulga land bioregions. Consideration of these attributes now sits alongside due diligence on more traditional factors, such as counterparty credit and reputation risks, and other volumetric and regulatory risks.
RepuTex ACCU spot price – Last assessed price
Source: RepuTex EnergyIQ Platform, as of 16/07/24
In recent months, the spread between the most competitively priced HIR ACCUs and Generic ACCUs has tightened, averaging 0.50/t over July. This has coincided with a decline in the proportion of HIR ACCUs transacted in the brokered market, which has fallen from 37% of total monthly spot volumes in May, to 21% in June, and just 14% in July month to date.
Comparably, prices for HIR projects with specific attributes traded in the OTC bilateral market have proven to be more resilient, as buyers show a willingness to pay a premium for projects that they deem to be more credible.
As the market evolves, and corporate disclosure requirements increase, we expect project specific procurement to remain a key feature in the HIR ACCU market.
New RepuTex HIR ACCUs (Project Specific) price assessment
The new RepuTex HIR ACCUs (Project Specific) assessment provides improved transparency and price discovery for buy-side and sell-side participants entering the more opaque bilateral market, helping counterparties to determine the fair value of transactions for projects with specific attributes, while providing a more robust benchmark for the pricing of long-term contracts.
The assessment, including a back-history, is now available to subscribers of our Australian carbon market intelligence and EnergyIQ services.
RepuTex assessments are published in line with our Survey Panel engagement process, which captures brokered and non-brokered transaction information directly from active sell-side and buy-side counterparties. This enables our Survey Panel process to capture the largest share of the market information, while accounting for the increasing volume of transactions that occur beyond the brokered market.
RepuTex’s ACCU price assessment remains the most widely adopted benchmark for the value of ACCUs sold under spot and forward contracts, with an estimated market value of over $800 million in 2023, a five-fold increase from 2022.
In May, RepuTex became the first to receive accreditation under the IOSCO PRA Principles for an ACCU price benchmark. Under IOSCO, to be reliable, reported prices must not be subject to price distortion. Entities that report prices must therefore not have a vested interest in the market, or receive compensation linked to the value or volume of transactions. This ensures reliability of price information for adoption by front and back-office functions, be it in the pre-trade or post-trade environment.
To take a tour of our EnergyIQ platform now, you can click here.
To set up a demonstration, or learn more about our new HIR ACCUs (Project Specific) assessment, please contact our Client Services team via email.
Kind Regards,
The RepuTex Team
Australian Energy Markets
