Business and investor activity drives prices up in Australia’s carbon market
The Australian carbon spot price continues to innovate almost every week, with the Australian Carbon Credit Unit (ACCU) spot price valuation increasing 5.5% to $ 21.10 / t over the past fifteen days. The spot price is now up 28% year-to-date, from $ 16.52 / t on Jan 1-21.
ACCU’s issuance is up 63% from our last update, with roughly two-thirds of the offer issued for Savanah Burning projects in the NT, QLD and WA. As per recent updates, voluntary cancellations continue to increase, with the second quarter reaching a record 4.9 million voluntary cancellations in Australia, an 82% increase from the second quarter of 2020.
Internationally, CORSIA-eligible compensation prices continue their recent run, impacting the demand for low-cost compensation in other categories of projects.
In this Market Update, we provide an overview of spot and forward carbon price dynamics, as well as ACCU’s supply and voluntary activity in the Australian carbon market.
ACCU cash market and procurement action
RepuTex’s Australian Carbon Credit Unit (ACCU) spot price valuation rose 5.5% from $ 20 / t to $ 21.10 / t during the fortnight, a new high. as the market continues to be supported by increased voluntary activity from participating companies and investors.
Estimated spot traded volumes declined slightly over the period from a high base last fortnight, with package sizes ranging from 5,000 to 40,000.
RepuTex’s Daily Price Assessment captures full-day trades for spot market ACCUs, derived from a survey of market participants and public information to uncover price data during the day of negotiation.
Data is collected from a representative sample of the Australian market, with our daily price assessment reflecting the average of all values traded for each day.
Our daily ACCU spot price assessment has been operational since January 2018.
The Australian carbon spot price continues to innovate almost every week. The spot price is now up 28% year-to-date, from $ 16.52 / t on Jan 1-21.
As noted in our previous update, the last time an Australian carbon price exceeded $ 20 / t was under the old carbon pricing mechanism, which set the price for compliance permits. carbon at $ 23 in FY13, rising to $ 24.15 / t in FY14 before the abrogation of the regime.
ACCU futures transactions and forecast prices
No forward transactions were recorded over the period, with three registered since April 21 for delivery between February 21 and 23 at $ 18-25 / t.
Settlement dates ahead of the February 28 deadline for covered issuers to return ACCUs under the safeguard mechanism suggest that futures activity is attributed to compliance entities seeking to hedge against further price increases in the market. cash and guarantee access to supplies.
The demand for compliance is expected to increase over our forecast period as companies begin to adjust offsets against their multi-year benchmarks.
This is expected to lead to an increase in the demand for compensation from compliance entities, the voluntary demand from the companies of the entities covered by the guarantees (and Climate Active participants) is also expected to increase.
We continue to forecast a further rise in prices in FY21-30, especially as investors and speculators continue to increase their holdings, and will ultimately use ACCUs to hedge climate risks in other asset classes (such as emissions-intensive equities or energy commodities), covered by our outlook for the July carbon market.
This could start to see ACCU prices align with the growth seen in markets such as the EU ETS, where speculative (long) positions fell from 7% in Jan-18 to 33% in May. 21, while long positions in the California ETS increased. similar growth of 12-27% YTD.
To see our latest webinar on Australian carbon market dynamics, including our 2021-30 Australian carbon offset price, supply and demand outlook, please click here (free link).
Issue of ACCU and registration of projects
11 new projects were registered over the period, including 5 soil carbon projects. In particular, a new project was registered in Victoria (Port Melbourne) as part of the land and sea transport methodology, which aims to reduce emissions from ships.
It’s just the 10the project registered as part of the methodology, and the third focused on ships, with only one project currently generating ACCUs (under contract with ERF).
1.2 million ACCUs were issued during the period, a 63% increase from our last update, of which about two-thirds are for Savanah Burning projects in the NT, QLD and the ‘WA.
ACCU’s total issuance now stands at 97.3 million (since December 31, 2012), including 16.45 million issued during FY21, an increase of 6% over the period. 203,873 ACCUs were newly issued in fiscal year 22.
As indicated, the majority of this total issue has been ceded or is contracted under fixed delivery contracts to the Emissions Reduction Fund, and is therefore not available in the market.
Approximately 183,000 compensations were voluntarily canceled during the period, a slight decrease from recent fortnightly cancellation rates. In line with recent trends, international certified emission reductions (CERs) continue to account for the majority of activity, with around 60% of all voluntary cancellations during the period.
The second quarter saw a record 4.9 million voluntary cancellations in Australia, an increase of 82% over the same period in 2020. More than 6.7 million cancellations have now been canceled during CY21 (after 6 months), already about 5% ahead of total CY20 levels, as cancellations continue to occur at an all time high.
About 95% of all voluntary cancellations take the form of CERs, reflecting the current trend of voluntary actors to use cheaper international CERs (when they can under the Kyoto Protocol) to meet voluntary targets immediate, mainly as part of the Climate Active carbon neutrality program.
As noted in previous updates, although the use of ACCUs for immediate cancellation is low, this does not reflect a lack of contracts for ACCUs (either through the spot market or bilateral contracts between large issuers and promoters), but rather reflects the higher value of ACCUs (as a compliance tool or due to higher co-benefits), which are contracted over longer delivery times rather than being immediately canceled.