Australia will soon have its first fully-fledged market for carbon permits, with the Clean Energy Regulator kick-starting work to establish a dedicated carbon trading exchange that will streamline and speed up trading of Australian carbon units.
The CER has issued an expression of interest for potential developers of an online exchange for emissions offsets, allowing offsets to be quickly traded. It is expected to support the emergence of new players into market for emissions emissions reductions.
The idea of establishing a dedicated exchange for government issued carbon units is to accelerate the trading and transfer emissions permits on a day to day basis, avoiding the need for traders to operate through often cumbersome emissions unit registries and is expected to significantly reduce transaction costs.
The exchange would likely interact with registries, allowing trading to occur via an online platform, and ‘reconciled’ at the end of a days trading, in much the same way as stock exchanges operate.
The CER estimates that as much as $100 million in business costs could be avoided through the establishment of the carbon exchange.
The CER, which issues Australian Carbon Credit Units (ACCUs) as part of the Emissions Reduction Fund, and sees the trading of ACCUs as the likely beneficiary of such a trading exchange, particularly as the market for voluntary emissions reductions continues to grow.
“These benefits include increasing market transparency including pricing, slashing transaction costs and reducing red tape, while accelerating emissions reduction and providing a boost to Australia’s economic recovery,” CER chair David Parker said.
“As reported in the Clean Energy Regulator’s Quarterly Carbon Market Report Quarter 4 2020, a record 16 million tonnes of emissions reductions were credited under the Emissions Reduction Fund (ERF) during 2020. Supply is expected to reach over 17 million ACCUs in 2021.”
“This makes the ERF one of largest and most robust offset schemes in the world,” Parker added.
So far, only small amounts of issued ACCUs are currently sold in the voluntary market for carbon offsets, which operates alongside the government’s Emissions Reduction Fund which directly purchases abatement. However, many predict this market will grow as demand for emissions reductions grows amongst large corporations making pledges and setting targets to reduce their emissions footprint.
The carbon market exchange could ultimately operate in much the same way as the share market, with brokers and traders exchanging units at publicly viewable market prices, boosting the transparency of the market.
The regulator’s announcement that it would progress plans for the carbon market exchange was welcomed by the Carbon Markets Institute.
“We see this as a positive sophistication of the market, building the platforms we need for the scale of action required. This development comes as corporate activity ramps up, banks are re-establishing carbon and environmental commodities trading desks and future exchanges are being developed by organisations including CMI’s 101st member FEX Global,” head of the Carbon Markets Institute, John Connor said.
The CER secured additional funding in the 2020 federal budget to upgrade and expand its IT infrastructure, and said that the development of the trading exchange will become a priority under that work.
“This initiative is to support the growing appetite across the private sector, government and the community to voluntarily reduce emissions,” Parker added.
The CER issued a call for expressions of interest from potential providers of the carbon trading exchange, kick-starting a tender process that will receive submissions until mid-June.