Australian carbon price rallies to 7-month high as demand increases

The price of Australian carbon credit units rose to a more than seven-month high Jan. 5 on increasing demand from the end-users, according to market sources and data from S&P Global Commodity Insights.

Platts, part of S&P Global, assessed Human-Induced Regeneration ACCU price at A$37.75/mtCO2e Jan. 5, representing a more-than-seven-month high. The price was last assessed at the same level on May 16, 2023.

The Generic ACCU price continued to be at more than a six-month high and was assessed at A$35.15/mtCO2e on Jan. 5.

While Generic ACCUs are generated by avoided emissions-based projects such as landfill gas and avoided deforestation, HIR ACCUs are generated by projects that store carbon by regenerating permanent native forests through alternative land management practices.

"It's really starting to seem like genuine end-user demand from Safeguard entities," a carbon trader said Jan. 8.

Market participants have been expecting a rise in demand from entities covered under the country's emissions compliance program called Safeguard Mechanism.

"We expected it at some point during 2024 for the market to grind higher as more and more compliance entities realize they have to get on the front foot and get ahead of their surrenders in 2025," the trader said.

With a great positive outlook for ACCUs, it was only a matter of time before the price started grinding higher, the trader added.

The rally came on the back of strong trading activity on Jan. 5, with 90,000 mt traded during the day.

A total of 170,000 mt of ACCUs were traded during the week ended Jan. 5, with the HIR price rising A$1.25/mtCO2e and Generic A$1.65/mtCO2e, S&P Global data showed.

There was consistent buying last week, in continuation of the buying seen throughout December, the trader said, adding that the volume in the first week of January seemed to be lighter than in December.

The ACCU price started rising through December, with the HIR price rising by A$1.95/mtO2e and Generic by A$2/mtCO2e in the last month of 2023. A total of 411,000 mt ACCUs were traded in the week ended Dec. 22, before the Christmas week, according to S&P Global data.

"[I have] been asked for offers, but don't have firm prices," a carbon broker said on Jan. 5. "I think my HIR seller got done already."

A second broker said that the end-user demand could be part of the price rise, with buying going through intermediaries such as banks.

ACCU holdings of Safeguard entities increased 72% quarter on quarter in the third quarter of 2023 to 5.4 million, Australia's Clean Energy Regulator said in a report in December.

More Safeguard entities may start buying ACCUs in the early fiscal year 2024-25 (July-June) as they prepare for the first compliance date of March 31, 2025, under the reforms passed in 2023, CER added in its report.

The Australian government also forecast in December that ACCU demand from participants is expected to increase to 26 million in 2030 from less than 1 million in 2022.