Carbon Markets

UPDATE: Carbon Offset Market Report – Buyers ‘rush to regeneration’ ahead of ACCU review – but are HIR projects without risk?

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The price for Australian Carbon Credit Units (ACCUs) has continued to drift sideways, with spot ACCUs (non-specified projects/landfill gas) closing lower on the week. Comparably, higher value regeneration projects continue to trade in volume, at higher prices, as buyers seek to minimise their exposure to the upcoming review of ACCU crediting methods. Human Induced Regeneration (HIR) units have become a safe-haven given their relative liquidity and risk profile. These methods, however, have not escaped criticism over the way carbon sequestration is estimated for regeneration projects that are outside of their originally developed vegetation types. While the review may lead to further refinements, we believe a more nuanced review of these methodologies is likely, which we discuss in more detail in this update.

The looming regulatory review has also flowed through to the first window of the ‘ERF exit’ program, which closed last week, with lower volumes now likely to exit the ERF due to lumpy demand for landfill gas and avoided clearing projects. As noted in earlier updates, the large volume of available supply eligible to exit the ERF continues to weigh on prices, subject to new sources of demand entering the market, in particular via the ALP’s Safeguard Mechanism 2.0 framework.

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