Australian Carbon Market Trends
The Australian Carbon market saw more buying this week, especially with generic ACCU’s trading between 30.50-31.40 ending the week on the highs with a reasonable trade Friday 17th for 30k tonnes. Human Induced Regeneration (HIR) traded the week at $34.25-35.00 on reasonable size volumes. Other lower-volume methods were not seen trading in the secondary markets OTC.
Emitters’ Challenges and Future Scenarios
There is a continued sense of unease in the emitters space with the realization that the options for decarbonisation in the mining and manufacturing sectors are in the medium term not solved via electrification in replacement of Diesel. With that in mind, we will be exploring a few scenarios of what the next few years look like in terms of ACCU compliance-driven demand. Last week we explored the mechanisms for how the boards and C-Suite are thinking in terms of meeting the needs of compliance and governance with those of the economically driven shareholders.
Safeguard Mechanism and Market Dynamics
This week we will again explore the safeguard mechanism a little deeper and help to explain how the decarbonisation task gets incrementally more expensive the longer large emitters “wait and see”. We have seen the pricing expressed in the forward curve with a steep price rise in 2026/2027. Where there is an efficient market with a broad base of participants, it will in general express the expectation of the future in today’s pricing. The main issue with the ACCU market it is one of the least efficient markets in existence, mimicking markets such rare earth elements and the like. That is where is opportunity is found!
Forecast and Investment Opportunities
With forecast implied pricing @75% higher than today’s spot price, it is important to see the numbers to understand why. To explain this in a clear demand supply manner let me explain why I remain bullish on the asset class. Under the following assumptions: 1. Static – Low growth of supply due to climatic variability and integrity probes 2. Low technical feasibility and availability to decarbonise facilities. 3. The nature of safeguard to allow MYMP to kick the can down the road. Below is a simple table of the covered emissions and the ACCU supply based on the above assumptions.
Shortfall and International Credit Expansion
As demonstrated there will be a material shortfall of ACCU beginning in 2026. The problem becomes acute in 2027 and by 2028 you can be sure the government and the climate change authority will be pursuing international credit expansion.
Complexities in Carbon Abatement
Things are never that simple. Especially in the capturing carbon of abating GHG game. Forecasts are rarely met when we seek decarbonisation. Australia will be in line to purchase high-integrity international credits. It will be competing with the likes of Japan, Korea, Singapore etc who will all require the same pool of credits.
Market Size and Investment Challenges
The actual size of the international carbon market is very small and there is almost no new investment currently as the recent pricing has seen many of the legacy project developers move away from the highest issuance credits in the REDD+ space which has undergone its own integrity issues with trial by media.
Conclusion: Emissions Trends and Credit Supply
The bottom-line is emissions are increasing, not decreasing and the supply of credits is very tenuous.