Australia’s de-facto carbon price at record high, may reach $50 per tonne

Australia’s de-factor carbon price – a voluntary market for carbon offsets – continues to show signs of life, with spot prices reaching new highs as big companies look to boost their climate credentials, even in the absence of strong federal policy.

The spot price of Australian Carbon Credit Units (ACCUs) recently passed $20 per tonne for the first time since the abolition of the Gillard government’s carbon price in 2014.

And, according to leading carbon market analyst firm Reputex, it could more than double in value, reaching as high as $50 per tonne by the end of the decade.

ACCUs are currently created by eligible offset projects under the federal government’s Emissions Reductions Funds, the shadow carbon market and the “Direct Action” policy created by the Abbott government after it repealed the Gillard government’s carbon price.

Most units issued to date have related to credits given not cutting down trees (avoided land clearing) and revegetation projects, as well as a large number of methane destruction projects (such as those produced and captured from landfills).

The federal government remains the largest purchaser of ACCUs, under the ‘direct action’ framework initially conceived under the Abbott government, with funds committed under the Emissions Reduction Fund and the subsequent Climate Solutions Fund to purchase the offset units from projects.

But programs like the Climate Active program, which certifies businesses as carbon neutral, have also become a key way for businesses to be seen to be doing something to cut their emissions in the face of growing pressure from customers and investors.

Reputex says it is likely that carbon prices will continue to rise, because of this corporate demand.

“Over the last six months we have seen increased demand for carbon offsets, and higher prices, as companies put their toe in the market to meet their voluntary emissions targets,” executive director at RepuTex, Hugh Grossman, said.

“While many companies will make internal emissions reductions part of their net-zero strategy, most will also utilise offset markets to meet their targets, which will continue to create demand for local offsets.”

Reputex says Australian carbon credit prices could jump as high as $50 per tonne before the end of the decade – even without the federal government introducing a meaningful form of carbon pricing, as the voluntary market is predicted to grow.

“Carbon offsets are increasingly being seen as a low-carbon commodity, and an asset class for investors to gain positive exposure to the net-zero transition,” Grossman said.

“As we start to see investors grow their holdings, and use carbon offsets to hedge climate risks in other asset classes, such as emissions intensive equities, or energy commodities, we see potential for the Australian carbon offset price to reach upwards of $50 by 2030.”

It is understood that many big businesses are also beginning to stockpile ACCUs, while prices are relatively low, in the belief that future governments will have no choice but to introduce stricter limits on emissions, which would drive prices higher.

Corporates looking to voluntarily offset their emissions have also turned to the ACCU market to meet this need, but the surging price of ACCUs means they trade at a significant premium to offset units that may be purchased from overseas.

Recent examples of companies receiving carbon neutral certification have seen these companies purchase just a small portion of their carbon offsets from local projects.

While the Australian produced ACCUs are now trading at above $20 per tonne, international units can still be purchased from projects in China, India, and Turkey for less than $1 per tonne.

Reputex says placing limits on the use of the much cheaper, and often lower quality, international emissions offsets would boost investment in new emissions reductions projects in Australia, and further support the emergence of Australia’s domestic voluntary carbon market.

“At present, around 95 per cent of all Australian voluntary action is being directed to international carbon offsets, which is seeing local capital flow overseas, rather than into Australian abatement projects that create jobs and improve our natural assets,” Grossman said.

“As the market evolves, we expect a flight to quality will result in increased demand for Australian offset projects, but if the government were to set limits on the use of international offsets, we could see investment in local offsets surge.”

“Australia has a significant opportunity to unlock new emissions reduction opportunities, but the offset market will need guidance – both via a target and rules to encourage private sector investment into local projects,” Grossman added.

Meanwhile, the Morrison government is currently consulting on proposed new rules under the Emissions Reduction Fund that would enable carbon capture and storage projects to be awarded ACCUs for emissions stored in the production of hydrogen.