Carbon Markets

To $30/t and beyond – Plenty of heat left in the Australian carbon offset market

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The spot price for Australian carbon credit units (ACCUs) jumped 10.5% on Friday to $28.75/t, a new record high, as the market continues to be buoyed by demand from high emitting companies. RepuTex’s ACCU spot price assessment, which compiles aggregate data from market participants, has now grown 74% calendar year-to-date.

As we have noted in recent updates, strong gains are primarily being driven by larger compliance buyers continuing to accumulate ACCUs to surrender against their multi-year baselines. Increased demand ahead of the Feb-22 compliance deadline under the safeguard mechanism, amid a tight supply setting, has created a bullish environment for spot prices and forward contracting, which we expect to continue.

As noted in our latest Carbon Market Outlook, higher prices have also begun to attract increased interest from investors and speculators. In particular, investor participation is expected to strongly influence price development over the medium-term. As participation grows, potential remains for a positive feedback cycle to take hold in the ACCU market, with increased corporate-led demand for ACCUs triggering higher prices, encouraging the increased participation of investors.

With the current tight supply setting expected to persist, we continue to see further upside in the ACCU spot price, with $30/t likely to be met and exceeded as compliance demand continues to develop. As noted in our earlier updates, the conclusion of some multi-year baselines is likely to see compliance demand grow ten-fold from under 100,000 units in FY21, supporting the current price rally. Plenty of heat therefore remains in the market, with Fixed Delivery Contracts under the Emissions Reduction Fund continuing to soak up the lion’s share of weekly ACCU issuance.

Expectations for the December quarter

The DEC quarter is anticipated to see 1.7 to 2.1 times more ACCUs issued than the SEP quarter, which may bring some relief to the accelerating increases in spot price, however, we expect 2021 prices to continue to grow, with a sellers’ market serving un-contracted demand.

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