Trading range narrows for Australian carbon spot price

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The Australian carbon spot price ended the 2020 calendar year down 4.5 per cent year-on-year, reaching $16.53/t on December 31, down from $17.28/t on January 1 2020. The price of Australian Carbon Credit Units (ACCUs) is currently $16.55/t.

Since climbing back above $16/t in early September, the trading range for ACCUs has narrowed in recent months, closing to $16.50-$16.55/t since early November on the back of low traded volumes and thin demand over the holiday period.

Over the year ahead, the prospect of a more ambitious long-term emissions target could lead to a more bullish outlook for ACCU prices, underpinned by momentum for the United States to return to the Paris Agreement, and expectations for laggard nations such as Australia to commit to more ambitious decarbonisation targets.

Figure 1: RepuTex ACCU spot price (12-month)

Australia leaves 2030 emissions target unchanged, but net-zero pressure mounts

On New Year’s Eve, the Australian Government communicated its first update to its Nationally Determined Contribution (NDC) under the Paris Agreement, resubmitting its existing plan to reduce 2005-level emissions by 26-28 per cent by 2030.

NDCs are submitted every five years in order to enhance the effectiveness of the Paris Agreement by ratcheting up individual and aggregate ambition over time. The government’s failure to increase its target therefore continues to leave Australia exposed as a laggard on the global stage.

While the government continues to defer calls to increase its 2030 goal, and/or set a net-zero emissions target, policymakers are unlikely to be able to hold their finger in the dyke for much longer, with Australia’s major trading partners – including China, Japan, South Korea, the European Union and the United Kingdom – adopting net-zero targets, while industry continues to press for clear direction to decarbonise the economy.

Following the US election in November, and the recent Senate runoff elections in Georgia – delivering the Democrats control of both houses of Congress – Joe Biden has proposed an ambitious climate agenda, which would return the United States to the Paris Agreement, set a net-zero goal of no later than 2050, and potentially implement carbon border fees or quotas on carbon-intensive goods.

As a result, 2021 shapes as a key year for global momentum on climate action, with the UNFCCC’s postponed Conference of the Parties (COP 26) – now to be held in November 2021 – likely to represent a tipping point for international pressure and local action.

Domestically, the pressure also continues to mount on the federal government, with Independent MP Zali Steggall’s Climate Change Bill to be considered by parliament in 2021 (after being delayed by COVID-19). Last year, the government responded to the Bill by announcing it will deliver a long-term emissions reduction strategy ahead of COP 26, at which point the writing appears to be on the wall for Australia to fall into line with the net-zero objectives of the Paris Agreement.

As we have noted in earlier updates, we view a net zero target as a critical step for policymakers – irrespective of the policy mechanism deployed to reach the outcome – with the destination more important than the mode of transport to get there.

In particular, setting an emissions reduction target for industry is the missing piece in the government’s climate policy framework, with a transparent pathway critical to transition Australia’s largest emitting facilities toward net-zero emissions, and ensure the contribution of near-term abatement in support of Australia’s 2030 emissions target.

Where to next for the Australian carbon spot price?

Longer-term, we continue to forecast higher ACCU prices as Australia tightens its emissions reduction ambition. In particular, the Paris Agreement is a key driver of our long-term offset price expectations, with our long-run ACCU price forecasts underpinned by the cost and availability of external offsets to meet a 1.5-2°C carbon budget between 2015-50.

Against our alternative price forecasts, today’s ACCU prices therefore represent value for early buyers, particularly high emitting companies taking voluntary action, with current prices trading at a notable discount to our 1.5-2 degree price pathways.

To access our latest Carbon Quarterly outlook, please click here, or contact our Melbourne office to speak directly with our analysts.

Kind Regards,
The RepuTex Team
Australian Electricity Markets

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