A regular update provided by a range of market participants and commentators. This week's update and commentary is provided by RepuTex.
The spot price for ACCUs remained flat at $30 per tonne on the week.
Although buyer interest remains positive (particularly for direct offtake agreements with project operators), spot market action has slowed in recent weeks.
There are three main reasons behind the spot market lull – the federal election, expected releases of ACCUs redirected from fixed delivery ERF contracts (delayed by administrative bottlenecks and policy uncertainty), and the possibility of a regulatory review of ERF project methodologies.
While spot action has been slow, two "swaps" were reported over the last week (via Jarden), with parties trading ACCUs created from Avoided Deforestation units for higher quality ACCUs from human-induced regeneration (HIR) projects.
The two trades were in parcel sizes of 25,000 and 100,000, with the buyers of the HIR units paying a premium of $1 (for the 25,000 parcel) and $1.25 (the 100,000 parcel) for each unit, reflecting a 3% to 4% premium on the current spot price of $30/t.
Market participants can enter into swap contracts for reasons including a goal of acquiring ACCUs perceived to be of higher environmental integrity, or swapping ACCUs created in different vintages, or geographic locations.
In late March, 5,000 beef herd cattle management units were swapped for HIR offsets, with the buyer of the HIR ACCUs paying a $1 premium, and in late February one party paid 50 cents extra per ACCU to swap 30,000 landfill gas units for HIR units.
Two spot trades for Human-induced Regeneration (HIR) specific projects were also recorded in early March (Jarden) at $33.50/t and $33.25/t, reflecting a premium of around 10% to the average spot price at the time.
While the uptick in swaps in Australia is off a low base, recent transactions indicate that the early stages of a "flight to quality" may be developing, with parties placing a premium on projects of higher environmental integrity as they respond to demand from voluntary buyers, and the threat of future regulatory risk.
Source: RepuTex EnergyIQ Platform, as at 27/4/22.
Price stratification in the international voluntary market
Price premiums for high quality projects are a well established trend in the international voluntary market (albeit where units trade at lower prices than in the local ACCU market).
Buyers in international voluntary markets pay a premium of about double (between 75% to 115% more) for nature-based removal and sequestration activities offsets relative to lower-quality energy efficiency and industrial avoidance projects.
However, this trend, while emerging in Australia, is still in its infancy.
Around 90% of all Australian voluntary cancellations continue to be in the form of lower-cost international offsets.
For example, Certified Emissions Reductions (CERs) - recently trading for as little as US$2/t - saw almost three million CERs voluntarily surrendered in Australia last quarter, versus around 300,000 ACCUs.
Prices for international voluntary offsets have stagnated over the past week due to macro uncertainty, and low overall demand after the Easter holiday.
In the nature-based space, average prices for nature-based removals and avoidance projects (carbon removal/sequestration and avoided deforestation projects) grew slightly to US$13.81/t, while REDD+ prices increased to US $14.09.
Prices softened in other offset categories, with Platts’ CORSIA-eligible credit (CEC) assessment closing at $5.80/t yesterday, as overall demand for non-nature based projects decreased markedly year-on-year, against higher supply.
Prices for European Union Allowances (EUAs) have again surpassed €80 (A$118), settling at €82.71 yesterday.
Looking ahead to the federal election
Looking ahead, the Federal Election continues to dominate the market, with the election outcome having a range of implications for the market development - notably whether the market continues as a “voluntary” construct, or transitions to a more robust “compliance” framework.
While the ALP's proposed changes to the safeguard mechanism will provide a transparent pathway for greenhouse gas abatement investment decisions by industry, any significant increase in demand for ACCUs is far from a lock.
That's because compliance demand for ACCUs likely to be affected by the introduction of new Safeguard Mechanism Credits (SMCs), which we forecast will be the marginal source of external abatement for businesses covered by the Safeguard scheme.
The creation of new SMC units, informed by expected volumes of industry greenhouse gas abatement, will therefore have considerable implications for forward ACCU price and market dynamics.
