Starting with the 1,000th project registered and the 100 millionth Australian Carbon Credit Units (ACCUs) issued, then ending with the announcement of the 13th Emissions Reduction Fund (ERF) auction results, the last month has brought a string of good news stories for the federal government’s direct-action carbon abatement program.
The ERF is a $2 billion Abbott-era government fund that purchases carbon abatement twice a year by conducting reverse auctions. At each auction, projects can be awarded ACCU off-take contracts that are either fixed – where the project must deliver the ACCUs over the contract term; or optional – where the project can sell their ACCUs to the ERF or choose to sell at a higher price on the spot market.
The average price paid by the Australian Government for ACCUs in the latest auction was $16.94, spread across 24 optional delivery contracts, for a total of 6.8 million tonnes of CO2-e abatement. This is the first time that no fixed delivery contacts have been awarded, against the backdrop of climbing ACCU prices in spot market. This suggests that the ERF is moving to a role of providing a floor price to project developers while still allowing them to participate in the growing spot market.
As shown below, this year has seen significant growth in the ACCU market with spot prices diverging from the historic trend of following the auction results. In the past 12 months, there has been a 108% growth price to $33.50, $10.40 (65% of the 12-month growth) being in the past 6 weeks alone.
In compassion to international markets, ACCUs (AU$33.50) are still trading at discount, per tonne of CO2-e, compared to European Allowances – €57.93 (AU$90.36); and UK Allowances – £58.00 (AU$106.95); But above the Californian Emission Trading Scheme – US$23.30 (AU$31.21); and China’s newly launched ETS – ¥41.62 (AU$8.73).
Also this month, the Minister for Energy and Emissions Reduction announced the program development priorities for 2022, which add methods for electric vehicle and hydrogen refuelling infrastructure, use of hydrogen, stacking of different activities on farms, and expansion of the existing carbon capture and savanna fire management methods. This announcement builds on the existing priorities for soil carbon, biomethane, plantation forestry, and blue carbon.
While there have been criticisms of some land-based methods in the past months, ACCUs are recognised as a high-integrity carbon units with a diversity of methods to credit carbon savings. The growing value of ACCUs is increasing interest in projects for industry, particularly in energy efficiency, fuel switching, transport, and alternative waste treatment across a range of sectors. The methods for industry are based on rigorous internationally recognised standards, such as the International Performance Measurement and Verification Protocol. While the ERF is dominated by land-based projects, industrial projects now make up 22% of the active projects, with further growth expected as higher ACCU price reduces payback periods for capital intensive projects in the industrial sector.
If you haven’t factored ACCU pricing into your next project, now is the time to reconsider how the carbon value of your projects can be realised to boost the energy productivity of your business as the world transitions to net-zero.