In the 2020-21 federal budget, $40.04 million was allocated over the next 10 years for the Clean Energy Regulator (CER) to reduce regulatory burden. The additional resources will be used to:
- Establish a new exchange platform for emissions reduction units.
- Build new IT systems to reduce timeframes for ACCU and ERF project registration.
- Reduce time taken to develop new abatement methods, so businesses can execute abatement projects more quickly.
Whilst these projects are welcome additions by the CER, the first one will be particularly exciting for organisations on the demand side of the market. A central exchange platform will increase transparency and ease of access for purchase of carbon credits. Whilst there aren’t details of which emissions reductions units will be available on the new exchange platform it is very likely these will be Australian Carbon Credit Units (ACCUs) and perhaps Large-Scale Generation Certificates (LGCs).
At the time of writing, no details were publicly available about when this exchange platform will be developed or be operational for use.
Existing Process for Acquiring ACCUs
Currently ACCUs can either be:
- Generated by registering an abatement project with the ERF and creating them as the project reaches maturity.
- Purchased directly from owners of registered abatement projects.
- Purchased from a third party broker specialising in the trading of carbon credit units.
The breakdown of holders of surplus ACCUs up until mid-2020 is as follows:
As can be seen, large amounts of ACCUs are outstanding and are held by project proponents and intermediaries. Currently to purchase ACCUs from these proponents an organisation would have to privately contact the proponent and agree on a price. Note a list of project proponents registered with the ERF can be found here: http://www.cleanenergyregulator.gov.au/ERF/project-and-contracts-registers/project-register.
It may be easier, but potentially more costly, to purchase ACCUs from intermediate brokers. Brokers have a running record of bids and offers for sale and privately track their own spot price when a transaction occurs. Brokers will also charge transaction costs and volumes are low creating quite a high spread, both of which disadvantage buyers (and sellers). This is all done with varying degrees of transparency.
Organisations that have need for a long term ACCU supply may also acquire or register their own abatement projects. Once this is done ACCUs generated by the projects can be surrendered by that organisation with any surplus being sold to the market or the ERF.
Implications for non-ERF ACCU demand
The new exchange platform will facilitate the demand of ACCUs for non-ERF sources. These are primarily organisations looking to move towards carbon neutrality as well as organisations looking to comply with the Safeguard Mechanism. The deadline each year to surrender ACCUs for Safeguard occurs at the end of February, so demand from this source is focused around the first quarter of each year. This as well as trends in the voluntary cancellation can be seen in the below chart.
Note that the CER estimate figures for voluntary cancellation are from the Quarterly Carbon Market Report September 2020. The Q1 2021 forecast is most likely lower due to the historical trend of Safeguard organisations making up a large part of ACCU demand in the first quarter.
Whilst the demand for ACCUs from non-ERF sources is growing, they still only made up 7% of voluntarily surrendered carbon units in 2019, with LGCs making up another 9%. The remaining portion of voluntarily surrendered carbon credit units was generated internationally. The implementation of an easy to use and transparent exchange platform will facilitate the purchase of ACCUs and potentially LGCs to increase the market share held by these Australian generated units. The existing disparity in the quantities of foreign and domestic carbon credit units is very likely attributable to the lower prices of major foreign carbon credit units such as Certified Emissions Reductions (CERs). The announcement of an Australian exchange platform is an opportunity for Australian businesses to grow the local carbon credit market whilst making it more accessible and affordable.