By Carl Binning, Executive General Manager Scheme Operations Division, Clean Energy Regulator
The market trading of Australian carbon credit units (ACCUs) continues to gain momentum following the Australian Government’s Safeguard Mechanism reforms. The role ACCUs will play in helping Australia’s largest emitting facilities to cut their net greenhouse gas emissions will be crucial to helping Australia reach its emissions reduction targets while supporting business through the transition to greener operations.
The Clean Energy Regulator (CER) administers the ACCU Scheme, which provides financial incentives to land managers, communities and businesses who register projects based on eligible methods to capture carbon or avoid the release of greenhouse gas emissions.
Under the ACCU Scheme, project proponents can be credited one ACCU for each tonne of carbon dioxide equivalent emissions they have stored, avoided or reduced under a carbon crediting method.
Decreasing net emissions
From 1 July 2023, the reformed Safeguard Mechanism requires Australia’s largest greenhouse gas emitting facilities to decrease their net emissions against a declining level (baseline).
Facilities that exceed their baselines will be required to manage their excess emissions by surrendering ACCUs or Safeguard Mechanism credits (SMCs) generated by other Safeguard facilities. Using ACCUs for compliance allows Safeguard facilities to access cost-effective abatement outside the scheme and create demand for emissions reductions more generally.
Operating similarly to any exchange-traded commodity, the levels of supply and demand determine the price of ACCUs, with some ACCUs more attractive to prospective buyers than others. The CER issued 17.2 million ACCUs in 2023 and we expect to issue a record number, around 20 million ACCUs, in 2024.
The carbon market in Australia
Australia’s carbon market is highly regarded globally compared to other carbon markets including those in Europe and the United States. The Independent Review of ACCUs, commissioned by the Australian Government in 2022, found the scheme to be sound and included recommendations to improve transparency and market confidence.
The CER expects the Australian market to have sufficient supply of ACCUs to meet increasing demand under the Safeguard Mechanism, with future supply from new and existing projects. However, the market may tighten toward the end of the decade with increased demand for ACCUs by Safeguard facilities.
Over time, Safeguard facilities are expected to increasingly invest in onsite emissions reduction activities. It’s important to note that the Safeguard Mechanism reforms have been designed to provide a material incentive to invest in onsite abatement rather than relying on offsets alone. This includes the ability of facilities to generate SMCs for going below their baseline and enhanced transparency measures, such as requiring facilities that surrender more than 30 per cent of their baseline to publicly explain why more on-site abatement was not undertaken.
In addition to the usual facility-level Safeguard data that is published each year, from this financial year onwards the CER will also be publishing the breakdown of each facility’s emissions by greenhouse gas type, and a breakdown of ACCUs surrendered by method. This additional transparency will help ensure that Safeguard facilities are contributing to achieving Australia’s international emissions reduction targets.
The CER is also developing the Australian Carbon Exchange to facilitate the trade of ACCUs. It will integrate with a new and improved Unit and Certificate Register, to be developed by Trovio Group. The Unit and Certificate Register will consolidate the CER’s current registers to hold ACCUs, as well as supporting other new units and certificates in the future.
Expected to be operational between late 2024 and early 2025 pending market consultation, the Exchange will help to make participating in Australia’s carbon markets both cheaper and easier, more transparent, and accessible.
The CER believes that Australia’s carbon policy framework provides a balanced framework for businesses – creating incentives for investment by offering a range of flexible compliance options, including access to domestic offsets, while creating material incentives for investment in onsite emission reduction activities.
The CER remains committed to supporting transparency, information transfer and liquidity in Australia’s carbon market, which is crucial to enabling Australia to reach its emissions reduction targets.
More information on the Safeguard Mechanism, the ACCU Scheme and the Australian Carbon Exchange can be found on the CER website.
