Australian carbon offset prices jump on surging corporate demand

Prices for Australian carbon offset permits have pushed above $17, a new 12-month high, boosted by demand from corporate emitters looking to take advantage of lower prices as the push for stricter long-term emissions targets gains momentum.

In a market update published on Thursday, Reputex said its benchmark price for Australian Carbon Credit Units (ACCUs) had recovered 8.5 per cent since prices fell during the onset of the Covid-19 pandemic, and were trading at around $17.15.

Demand for offsets had increased amongst many corporate emitters, with a growing number of companies setting their own targets to reduce operational emissions to net zero by 2050 and embracing offsets to achieve carbon neutrality earlier, in response to consumer demand.

While most ACCUs are still purchased by the federal government under the Emissions Reduction Fund, companies like Telstra, AGL Energy, Lendlease, through to smaller companies including multiple beer brewers, have announced commitments to carbon neutrality in their operations or the products they sell, raising demand for offset permits.

Reputex executive director of energy and carbon markets, Hugh Grossman, suggested that many companies were looking to acquire carbon permits early, in anticipation that further commitments to cut emissions would push carbon permit prices even higher.

“Current price levels are built mostly on the back of companies and speculators looking to acquire credits while offset prices remain undervalued,” Grossman said.

“We’re seeing high emitting companies test the market as part of their carbon neutrality and emissions reduction strategies, while many also have an eye on future compliance risks, with long-run prices forecast to increase as Australia’s emissions targets are tightened.”

Reputex said that interest in ACCUs had also increased following a mellowing of prime minister Scott Morrison’s stance on zero-emissions targets. While Morrison has yet to commit Australia to a specific zero emissions target, the PM has changed his language to suggest he is open the concept of Australia transitioning to a zero emissions economy.

“Industry sees the writing on the wall for net-zero emissions, and is starting to set more ambitious interim targets to reduce emissions, either as a way to mitigate future compliance risks, or to better manage stakeholder and investor scrutiny,” Grossman said.

“For those companies, today’s carbon offset prices therefore represent value, with early movers snatching up offsets at a notable discount to long-run price scenarios.”

Reputex said that the growing use of carbon offsets as a voluntary measure to reduce emissions footprints would see demand continue to grow, and that further increases in permit prices could be expected going forward.

“We continue to forecast higher ACCU prices as Australia strengthens its emissions reduction ambition under the Paris Agreement,” Grossman added.

“Net-zero emissions is a key driver of our long-term offset price expectations, with the ambition and timing of Australia’s scaled up target a key watch for the market.”

Reputex said that ACCU prices were approaching an all-time high, set in November 2019 when permits traded at $17.54 per tonne, an could be expected to rise towards $18 per tonne by the end of 2021.