This is the first Statement of Opportunities on the Australian carbon credit unit (ACCU) market. This statement is in response to a recommendation made by the Climate Change Authority in its 2017 review of the Emissions Reduction Fund1.
This statement outlines the opportunities presented by new emerging sources of demand from voluntary and state and territory participants, as well as the continued purchasing through the Emissions Reduction Fund. It also highlights current and new opportunities to generate ACCUs and initiatives to inform and build capability in the ACCU market.
This publication also includes an ACCU market update which builds on our
market update released in December 2018.
Private and state and territory demand is growing year on year and is projected to be up to 5 per cent of ACCU demand in 2018–19. Sources of demand include state and territory governments, state-owned corporations and voluntary corporate participants—including National Carbon Offset Standard/Carbon Neutral Program participants. There is also ongoing demand under the Safeguard mechanism.
Graph 1 below shows that over 260,000 ACCUs have been voluntarily cancelled for this financial year, with approximately 260,000 to 350,000 additional ACCUs projected to be cancelled by the end of 2018–19. The majority of units are typically cancelled in the last quarter of the financial year. These units are in addition to those for Emissions Reduction Fund contract deliveries and Safeguard obligations.
Source: Clean Energy Regulator. *Demand for 2018-19 includes Safeguard surrender and voluntary cancellations to 1 March 2019 and upper and lower bound forecasts for future demand.
State and territory government demand is an emerging source of demand, with more than 210,000 ACCUs cancelled in 2017–18 and over 60,000 ACCUs cancelled to 1 March 2019. It is made up of government commitments and policies to offset emissions for specific activities within their jurisdiction. Examples include offsets for emissions associated with the operation of some desalination plants in Australia and vehicle fleet emissions.
Voluntary demand for ACCUs in increasing, rising from 48,000 ACCUs in 2015–16 to over 140,000 ACCUs in 2017–18. Approximately 200,000 ACCUs have already been cancelled in 2018–19 to 1 March 2019. Voluntary demand for ACCUs includes organisations seeking certification under the Department of the Environment and Energy’s
National Carbon Offset Standard and other corporate demand to offset all or part of an entity’s supply chain or operations.
The private market for ACCUs is currently conducted through mainly over-the-counter transactions and activity by brokers and other intermediaries is increasing. ACCU spot prices on the secondary market are now published on private websites, at $15.35 as at 1 March 20192.
While the Emissions Reduction Fund average weighted auction prices provide an indication of market prices, prices for short term purchases through traders or agents are materially different depending on ACCU availability at the time and can command a premium for immediate delivery.
Spot ACCU prices are somewhat above long term average Emissions Reduction Fund auction prices illustrating the opportunity to supply more ACCUs into the secondary market. Potential sellers could contract part of their supply to the Commonwealth and the remaining could be contracted to others or sold into the growing secondary and spot markets.
There is currently over $226 million remaining in the Emissions Reduction Fund, which is available to the Clean Energy Regulator to purchase abatement through future auctions. Emissions Reduction Fund auctions stimulate the development of projects and tend to bring on more supply to meet private and state and territory government demand.
On 25 February 2019, the Australian Government announced a $2 billion
Climate Solutions Fund to extend government purchasing of ACCUs under the current Emissions Reduction Fund mechanism. Appropriations through the Climate Solutions Fund have been announced from 2020-21 onwards. In the interim, purchasing under the Emissions Reduction Fund will be from existing appropriations.
Experience in the last two Emissions Reduction Fund auctions was that volumes bid for contract under an auction were a smaller proportion of the expected total abatement proposed by Emissions Reduction Fund participants for registered projects compared with previous auctions. This may suggest that participants are either intending to offer a greater share to the private market or are building in a buffer to manage risks and more actively trade their portfolios.
The Clean Energy Regulator will conduct the ninth Emissions Reduction Fund auction on 24–25 July 2019. The Clean Energy Regulator remains focused on purchasing the best value abatement available to encourage development of the carbon market.
The Clean Energy Regulator expects that the scale of this auction will be similar to those held in recent times with the format and guidelines remaining unchanged from auction eight. As with auction eight, at auction nine, the agency will purchase between 25 and 100 per cent below the benchmark price.”
A recent innovation being offered again for this auction is that, in addition to existing contracting arrangements, the Clean Energy Regulator is open to entering into contracts that are contingent on the participant entering into a further Australian carbon credit unit (ACCUs) contract with a third party. This is intended to help broaden the availability of ACCUs to the private market.
Proponents taking up this option could both sequence and apportion their delivery of ACCUs to the private market and their contract obligations for the Emissions Reduction Fund.
Those interested in participating in this auction have until 11 June 2019 to apply to register projects, and until 18 June 2019 to qualify to participate in the auction.
The auction guidelines and details about the auction process is available on
participating in an auction.
Safeguard demand for 2017–18 (151,307 ACCUs) was lower than 2016–17 (379,307 ACCUs)3. This was in part due to an increase in the number of Safeguard entities using multi-year monitoring periods.
Where a Safeguard facility has exceeded its baseline, a multi-year monitoring period provides Safeguard entities with either a two or three year period to average out peaks and troughs in emissions, implement emissions reduction actions and, if necessary, acquire ACCUs. Due to the options available, the Clean Energy Regulator does not expect significant demand to emerge from these multi-year monitoring periods in the short term4. There are currently 17 facilities using multi-year monitoring periods, six from 2016–17 plus another 11 from 2017–18 (see
Safeguard baselines table).
On 7 March 2019, amendments to the
National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 came into effect. These amendments change the way baselines are set and apply from the 2018–19 Safeguard compliance period onwards. As Safeguard entities work through the options allowed under these amendments, including new calculated baseline applications, the level of ACCU demand from the mechanism will become clearer.
The Emissions Reduction Fund scheme has grown significantly with project numbers increasing from 278 projects registered and 15.4 million total ACCUs issued at the end of 2014–15 to 773 projects registered and 59.2 million ACCUs as of 1 March 2019.
Source: Clean Energy Regulator. *2018–19 data is as at 1 March 2019
Supply is increasing with 7.7 million ACCUs issued so far in 2018–19, up approximately 12 per cent compared to the same time last year. Total forecast supply of ACCUs for 2018–19 is currently 13.8 million5, 1.6 million higher than total forecast demand from Emissions Reduction Fund contracts (12.2 million).
In Western Australia there are now 60 projects registered under vegetation methods. Under the recently made planation method, 11 projects have now been registered. A
soil carbon project was recently issued with the first units under this method.
The map below shows the full range of land based projects that are currently registered to generate ACCUs6. Given most of these projects have been registered since 2013, it demonstrates a rapid expansion of projects over the past five years; however, it is also clear that there remains large potential land areas where Emissions Reduction Fund projects could be developed. An
interactive map is available on the Clean Energy Regulator’s website.
Recent reviews and changes to methods have the potential to add to supply. These include:
In addition to this statement of opportunities, the Clean Energy Regulator publishes a range of
demand data to enable market participants to track key trends and indicators across the market.
We have also recently published mapping files for all Emissions Reduction Fund area based projects on the
National Maps website.
To support the development of the carbon market, the Carbon Market Institute is working with the Clean Energy Regulator to deliver a seminar series in March 2019 taking an in-depth look at opportunities to source ACCUs in Australia’s carbon market.
As noted, the private market for ACCUs is developing. At the present point it is essentially an over-the-counter market and, while bid-offer information platforms have emerged, any trades are completed through the Australian National Registry of Emissions Units (ANREU) run by the Clean Energy Regulator using standard transactional arrangements.
It could be expected, (if the ACCU market follows the evolution of other markets’, like markets for water entitlements and allocations) that the ACCU market could develop further toward platforms that are more akin to exchange traded arrangements with automated clearance / settlement platforms.
Any such systems would need to ultimately connect to the ANREU, which is the underlying market registry, because it has a statutory foundation. Accordingly, the Clean Energy Regulator is factoring this potential into its IT systems development roadmaps and envisages building Application Program Interfaces that would support exchange traded systems at some point in the future. The Clean Energy Regulator is interested in discussing this potential with private proponents that may be contemplating building exchange traded platforms with automated clearance / settlement in the future.
More than 59 million ACCUs have been issued since 2011, with a current balance of 3.8 million ACCUs in the ANREU, as shown in Table 1 below.
^ The carbon pricing mechanism was repealed, with effect from 1 July 2014.
* Safeguard mechanism surrender does not include deemed surrenders.
+ Please see more information on
# While a balance of ACCUs may be available in ANREU at any one time, only a proportion of these ACCUs may be available to trade on the secondary market as ACCUs may be held or banked for future needs (e.g. delivery under contract, safeguard liability or voluntary cancellation).
Graph 4 below shows the supply and demand balance of the market since scheme commencement and includes Emissions Reduction Fund contract scheduled deliveries out to 2029–30. Key changes since the last update include 151,307 ACCUs surrendered by 28 February 2019 for the 2017–18 Safeguard mechanism compliance year, 2.4 million additional ACCUs issued to Emission Reduction Fund projects, and 1.8 million ACCUs delivered under Emission Reduction Fund contracts.
Total volume to be delivered under current Emission Reduction Fund contracts to 2029–30 is now 153.7 million ACCUs, after delivery of 39.5 million ACCUs. This volume will increase as additional auctions are conducted. Some contracts with conditions precedent lapse without coming into effect, if the conditions are not realised. In this event the funds dedicated to such a contract are returned to the pool and are available to fund further auction contracts. Because the Emissions Reduction Fund pays on delivery no monies are expended on such lapsed contracts. Scheduled deliveries under current Emissions Reduction Fund contracts are generally increasing year-on-year in the medium term from 10.9 million in 2017–18 up to 20.9 million by 2021–22. For 2018–19, total Emission Reduction Fund contract deliveries are currently forecast to total 12.2 million ACCUs.
Source: Clean Energy Regulator. *Data as at 1 March 2019.
Data and balance of ACCUs current as at 1 March 2019. Emissions Reduction Fund scheduled Deliveries will change over time due to early deliveries, re-scheduled deliveries, contract lapses and terminations, and new contracts. For the 2018–19 financial year, voluntary and state and territory government demand forecasts are not included. Voluntary and state and territory government demand to date is included for 2018–19.
To date, almost 2.1 million ACCUs have been traded in markets through 119 transactions in 2018–19 as outlined the graph below. This number is up from 1.4 million ACCUs through 82 transactions at this time last year, representing a 51 per cent increase in traded volumes and a 45 per cent increase in transactions between parties. The average transaction size has remained steady, around 17,500 ACCUs.
This statement of opportunities represents the Clean Energy Regulator’s views at the date of publication. The Clean Energy Regulator is providing this information to the market to increase market transparency, help identify genuine low cost carbon abatement opportunities, and assist entities who need to source ACCUs, including Safeguard entities with obligations under the Safeguard mechanism. The Clean Energy Regulator has used its best endeavours to ensure that the information is accurate, complete and fit for this purpose. The market update is not financial advice. You should obtain your own independent professional advice in light of your particular circumstances on the state of the ACCU market before making any investment decisions. Because the information is provided as general information only, neither the Clean Energy Regulator nor the Commonwealth of Australia will be liable for any direct, incidental or consequential loss or damage resulting from the use of ACCU market updates, or the information provided through ACCU market updates or the availability or non-availability of ACCU market updates.
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