The spot price for Australian Carbon Credit Units (ACCUs) climbed to $33.50/t on Thursday, a new record high, as tight supply, increased voluntary buying and the prospect of a net-zero emissions target pushed the market higher.
RepuTex’s ACCU spot price assessment, which commenced in 2018, has now doubled over the 2021 calendar year, growing 103% from $16.52/t at the start of January. The Australian market has outperformed European Union Allowance (EUA) prices over CY21, with prices in the EU ETS closing 77% higher on the year to €57.78 (A$89) on Tuesday.
As we have noted in recent updates, increased buying from investors and intermediaries, along with corporate voluntary demand, has driven strong gains over CY21.
In particular, increasing contracting demand from the corporate sector has led to a tight supply setting in the spot market, with new issuance being set aside to fulfill large bilateral contracts (>100,000 units) for both spot and forward delivery.
The lower volume of surplus supply has therefore created a bullish environment for spot prices, where demand continues to outweigh supply, even at much smaller volumes.
In addition to voluntary demand, compliance buyers continue to accumulate ACCUs to surrender against their multi-year baseline under the Safeguard Mechanism. The conclusion of some multi-year baselines is likely to see compliance demand grow more than ten-fold from under 100,000 units in FY21, further supporting the current price rally.
We continue to anticipate an uptick in issuance over the December quarter, however, it remains a seller’s market underpinned by (increasingly less) un-contracted supply.
The bulk of this new issuance is expected to be delivered to existing Fixed Delivery contracts under the Emissions Reduction Fund, or set aside to fulfill larger bilateral contracts, with limited supply expected to be made available to smaller spot buyers.
Increasing momentum for a national net-zero emissions target also remains a supportive factor for market prices.
While the real-world impact of a new national target will be negligible unless it is legislated and embedded into existing policy, the macro environment is hard to ignore, with sellers becoming increasingly bullish as they leverage the positive macro story and tight supply conditions to drive prices higher.
To view Reputex’ latest Carbon Market Outlook, please click here,