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Q1 2023 | Australia’s Carbon Market Strengthens

April 05, 2023

Australian Carbon Credit Units Industry Insights and News

In brief

Prices in the Australian Carbon Credit Unit (ACCU) market strengthened over the quarter following the release of the report of the Independent Review of ACCUs (Chubb Review) and changes to the Safeguard Mechanism (SM). Spot prices were consistently in the $33-39 range.  

The Chubb Review examined the integrity of the scheme. It found ACCU arrangements to be ‘essentially sound’ while recommending changes to clarify governance, improve transparency and enhance confidence in the integrity and effectiveness of the scheme. The federal government has obtained support from the Greens for legislation supporting changes to the SM which will in effect create a new source market demand for ACCUs. Meanwhile, the latest analysis by the Clean Energy Regulator shows a deceleration in the annual rate of increase of ACCU supply over the last two years, compared to the entire period since 2017. Supply of ACCUs is projected to further tighten in 2023.  The 15th ERF auction will be held on 29-30 March 2023.

Safeguard Mechanism (SM) – a new source of demand

Changes to the Safeguard Mechanism effective 1 July 2023 will force 215 major industrial facilities (those emitting >100,000 tonnes CO2-e) to meet an emissions limit (‘baseline’) that will decline by 4.9% each year to 2030.  SM facilities can reduce emissions to meet baseline requirements by:

  • Implementing innovative technologies/efficiencies/operating practices; or
  • Buying a new tradeable credit (an SMC) from a SM facility that reduces emissions below its baseline; or  
  • Buying domestic offsets (ACCUs) which will be available at a capped unit price of $75; or
  • (Longer term) Accessing ‘high-integrity’ international offsets (subject to further ‘integrity’ checks being completed by the federal government).

The Safeguard Mechanism therefore effectively creates a new source of demand for ACCUs.  While firms will access the lowest cost form of abatement to meet SM obligations – investments in technology or purchasing carbon credits – in many cases this will be ACCUs.

The economics of decarbonisation technologies remain challenging in many industrial sectors. ‘Hard to abate’ sectors – including steel, cement and aluminium – have few options to reduce emissions in the short-medium term as a large portion of their emissions arises from inherent chemical processes. Purchasing ACCUs is likely to become the only viable option.

Similarly, large oil and gas/LNG operations (which currently account for around half of emissions covered by the SG mechanism) will be pressured by the Labor-Greens deal on the SM legislation – with implications for cost and continued investment in the sector. In the gas sector, deployment of carbon capture and storage (CCS) is the major technological option for reducing emissions, but it comes with high capital cost and long project development lead times (5-7+ years). For new gas fields, reservoir gas will need to be zero emissions, effectively meaning  deployment of CCS. For producing gas projects – where CCS is a viable option – offsets (ACCUs) will be needed to meet declining baseline requirements while the CCS project is developed. And for existing gas projects, where retro-fitting CCS is technically challenging, ACCUs will also be the lead option for meeting SG baselines.

While no limits are placed on ACCU use, firms which use over 30% offsets to meet requirements will need to explain why to the Clean Energy Regulator. Ultimately, SMCs will become available as technology investments bear fruit in some SG facilities but supply is expected to very limited, at least in the short-medium term. 

Tightening ACCU Supply

ACCU supply comes from 37 methods under which projects produce ACCUs over periods between 7 and 25 years. However, three methods dominate: the HIR method (~30%), Landfill Gas generation (22%) and Avoided Deforestation (20%). Beyond some tightening up of the eligibility or compliance rules, the HIR and Landfill Gas Methods were not significantly affected by the Chubb report. Tweaks to the baselines for Landfill Gas Projects under Chubb will affect (modestly) the number of credits generated by new projects but not necessarily existing projects.

While new Avoided Deforestation projects will not be allowed under the Chubb Review recommendations, existing projects will not be affected. While the prospect of a new method to cover the activities covered by the Avoided Deforestation Method was floated in the Chubb Report, registration of new projects under the method have declined in recent years.

The Clean Energy Regulator in its latest quarterly report commented there is no guarantee there will be sufficient ACCU supply for every SG facility to meet all future liability with ACCUs. Annual ACCU supply has increased by a total of 5.6 million since 2017 (annual average increase of 1.1 million). However, over 2021-22, the rate of annual increase fell to 0.85 million ACCUs, with the prospect of 2023 being much less than that. While new methods will be developed, it is difficult to predict the timing or level of future additional supply.

The new CCS method, expected to be a major source of supply by the previous government, has been neutered by the SM requirement that SM facilities cannot generate ACCUs for emissions reduction projects. As CCS projects are most likely to have been contemplated at SM facilities, this is likely to constrain the potential for new supply from this method.  


All this means constrained supply at a time of growing demand. Over the period to 2030, this is likely to continue. The price of ACCUs is therefore likely to continue its upward trend. Most analysts expect the price to head towards the $75/tonne CO2-e ACCU ‘compliance cap’. The spot price for ACCUs has already risen from $34 to around $39 over the quarter.

The upward trend for ACCU prices may ultimately be softened by the extent to which international credits become available to meet demand. However, there is no firm indication yet on when the federal government will complete its ‘integrity checks’ of international credit schemes.    

While purchasing ACCUs is only one of four options available to covered entities to meet this regulatory requirement, ACCUs will be an attractive ‘least cost’ option in the short-medium term.

Over the long-term, adoption of ‘decarbonisation’ technologies will be needed but many face availability and economic hurdles in the period to 2030.   


This report is for information purposes only and is not intended as an offer or solicitation for wholesale clients as defined in s761G of the Corp[orations Act 2001 (Cth). This report does not take into account the investment objectives, circumstances, financial situation or particular needs of any particular person and does not constitute personal advice. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision. Evolution Trustees (AFSL 486217) does not guarantee repayment of capital or any particular rate of return. Past performance is no guarantee of future performance. Statements of fact in this report have been obtained from and are based upon sources that Evolution Trustees believes to be reliable, but Evolution Trustees does not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions and estimates included in this report constitute Evolution Trustees judgement as at the date of this communication and are subject to change without notice. This article may contain forward-looking statements regarding our intent, belief, or current expectations with respect to market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. Evolution Trustees does not undertake any obligation to revise any forward-looking statements to reflect events and circumstances after the date of this website.

About Evolution Trustees

Evolution Trustees is a leading independent provider of Australian professional fiduciary services to fund managers, institutional asset investors and debt providers. Established in 2016, Evolution Trustees now has over $A10bn of funds under supervision and provides services to over 160 entities. Evolution holds an AFSL that authorises it to provide general advice and deal in Australian Carbon Credit Units (ACCUs) and eligible international emissions units. Evolution Trustees is a recognised leader in supporting inbound institutional investors establish structures to invest in Australian real estate.

Please refer to our website for more information at www.evolutiontrustees.com.au

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