With just two weeks to run until the Australian federal election, the 47th Parliament is set to play an important role in determining the development pathway for the Australian carbon market – be it the continuation of the current “voluntary” market setting under the Coalition, or a transition to a more robust “compliance” framework under the ALP’s re-worked Safeguard Mechanism framework.
While the Australian carbon offset market approaches the 2022 federal election on a much stronger footing than in 2019 – underpinned by bi-partisan support for net-zero emissions and record growth in corporate voluntary demand – the local market also faces considerable challenges, with upside forecast to be weighed down by a surplus of ACCU supply from existing carbon farming projects as proponents begin to exit their ‘fixed delivery’ carbon abatement contracts under the ERF.
In addition, questions remain over the role of proposed Safeguard Mechanism Credits (SMCs), which also enjoy bi-partisan support, with the development of low-cost industrial credits to potentially trigger a “two-speed” carbon market, while threatening to erode both compliance and voluntary investment in ACCU offsets.
Expectations that a change in government will “significantly increase” demand for ACCUs is therefore far from certain, with SMC creation – informed by policy design, industrial abatement costs, and investment decision making – to have considerable implications for forward ACCU price and market dynamics.
In this Market Update, we present scenarios for ACCU market development based on potential election outcomes, informing the probability of possible policy settings, and the alignment of outcomes to our medium-term price expectations.