The price of Australian Carbon Credit Units (ACCU) has surged on the first day of trading after the federal election, buoyed by expectations that the new Labor government will drive increased demand for emissions reductions.
ACCU prices jumped almost 20 per cent higher on Monday, pushing above $35 per tonne, the highest level since a surprise market intervention in March by the former Morrison government saw the price of carbon offsets plummet overnight.
Reacting to Labor’s success, offset traders moved quickly to snap up available ACCUs in anticipation that a strengthened Safeguard Mechanism would substantially boost demand for the offsets.
The renewed confidence in Australia’s carbon markets comes as incoming climate and energy minister Chris Bowen played down the prospect that Labor would be pressured into strengthening its climate policies by the big numbers of Teals and Greens MPs.
The climate policies Federal Labor took to the election will rely heavily on repurposing the Coalition’s existing Safeguards Mechanism to drive down emissions from industrial energy users.
This will see more industrial emitters seeking out carbon offsets that they can use to comply with more stringent emissions caps set to be imposed by the Albanese government.
Carbon market analysts Reputex said that a positive sentiment amongst traders had returned following the election result but cautioned that the fine details of any policy changes still needed to be worked out.
Reputex – which was commissioned by Labor to model its climate policy package – said traders were awaiting more clarity on the potential award of ‘Safeguard Mechanism Credits’ to companies that achieve additional emissions reductions below their specified caps.
“Expectations that a change in government will significantly increase demand for ACCUs is therefore far from certain,” Reputex said in a research brief.
It pointed to the need for more details about policy design, industrial abatement costs, and investment decision making – which would all have considerable implications for ACCU prices and market dynamics, even under a more supportive ALP policy environment.
In March, former energy and emissions reduction minister Angus Taylor announced that many carbon offset projects would effectively be freed from contracts to sell ACCUs to the government.
It was a move that saw the ACCU spot prices collapse as the market for the offset units became flooded with extra the extra supply.
Before the surprise intervention, ACCUs had traded as high as $57 per tonne on the open market, driven higher by expectations that Australia would eventually adopt stronger emissions reduction targets and voluntary corporate commitments to decarbonisation targets.
“Following changes to the ERF in March, the Australian carbon offset market now finds itself with a potential surplus of ACCU supply from existing carbon farming projects,” Reputex adds.
“As proponents begin to exit their ‘fixed delivery’ contracts under the Emissions Reduction Fund (ERF), this surplus is likely to weigh on prices, subject to the timeline and magnitude of new sources of demand entering the market.”
The Carbon Market Institute – which represents participants in Australia’s carbon offset markets – welcomed the election result, saying that the change in government could serve as a “watershed” moment for Australian climate policy.
“After witnessing more than a decade of political debate, as well as the direct impacts of a warming climate on lives and livelihoods, Australians recognise the need for urgent action on climate change and have voted with their feet,” Carbon Market Institute CEO John Connor, said.
“This election has the potential to be a watershed moment in unlocking a far more ambitious climate agenda and urgent action this decade, however it must be accompanied by the right policy settings and governance structures,” he said.
Incoming energy and climate minister Chris Bowen sought to quell expectations that a strong election showing from the Greens and a large number of ‘climate independents’ would require Labor to strengthen its climate commitments.
Labor still stands a reasonable chance of securing a majority in its own right in the House of Representatives, while the Greens are also well placed to hold the balance of power in the Senate.
On Monday, Greens leader Adam Bandt said he interpreted the election result as delivering a mandate to his party to push the new Albanese government to strengthen its climate policies.
Labor said before the election it would stick to its own climate policies – including its promised target to cut emissions by 43 per cent by 2030 – and that it would be able to achieve this target without legislative changes – potentially avoiding the need to negotiate with the expanded crossbench.