Energy Transition, Carbon, Emissions

January 22, 2025

Australian carbon credit prices fall to over 5-month lows as fundamentals weaken

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HIGHLIGHTS

Generic ACCUs fall to A$34.20/mtCO2e, HIR ACCUs drop to A$34.25/mtCO2e

Demand is bearish

Prices could improve slightly before March 31 surrender deadline

Generic Australian carbon credit unit prices fell to an over-five-month low on Jan. 21, while human-induced regeneration ACCUs reached a near six-month low due to weak market fundamentals ahead of the compliance deadline in March and some political uncertainty before Australia's federal election in 2025.

Platts, part of S&P Global Commodity Insights, assessed generic ACCUs at A$34.20/mtCO2e ($21.43/mtCO2e) on Jan. 21, down A$1.30/mtCO2e day over day, and HIR ACCUs at A$34.25/mtCO2e, declining A$1.40/mtCO2e from Jan. 20. Generic ACCUs were last lower on Aug. 9, 2024, while HIRs were last assessed at the same level on July 31, 2024.

Generic ACCUs are produced by projects focused on avoiding emissions, whereas HIR ACCUs are created by projects that store carbon through the regeneration of permanent native forests using alternative land management practices.

ACCU market activity has been lackluster since the beginning of 2025 due to sluggish buying interest.

Most Safeguard entities have completed their ACCU purchases in the fourth quarter of 2024 to comfortably meet their compliance obligations by the March 31 surrender deadline, according to market sources.

Australia's ACCU scheme was established to require heavy-polluting facilities, referred to as Safeguard entities, to reduce their emissions by purchasing carbon credits. This initiative also supports the country's efforts to achieve its net-zero target.

Political landscape

Market sources said activity has slowed ahead of the federal election in Australia, with participants waiting on the sidelines for fresh policy cues.

Some market participants are concerned that if the opposition Coalition alliance unseats the incumbent Labor government, they may not address climate change with the same level of rigor.

The Coalition has previously declared its intention to revoke the mandatory environmental reporting requirements for high-emitting entities.

Meanwhile, US President Donald Trump's withdrawal order from the Paris climate agreement also weighed on prices.

"The ACCU market might have been shocked by Trump's unwinding of several environmental policies," said a Sydney-based ACCU broker. "There was certainly a lot of chatter among participants about bearish sentiment in the market [as] it was a lot of news to digest in a short period of time."

The broker said it has yet to be determined whether political developments will affect Australia's Climate Change Authority's 2035 targets, with the anticipation that more clarity will emerge before the federal election in May.

"On a micro level, US politics should have no material effect on compliance markets around the globe. However, on a macro level, it does boost the confidence of those who harbor anti-climate sentiments [which might] have otherwise been more subtle," a Sydney-based ACCU trader said.

Market dynamics

Some aggressive forecasts in the last quarter of 2024, predicting prices to surpass A$40/mtCO2e, incentivized some buyers to purchase more ACCUs than they required ahead of time, a trader said.

"The strong liquidity that moved prices up rapidly at the end of 2024 was largely synthetic," said the trader. "There were a bunch of new entrants in the market that created a lot of [price movement]."

The trader expects prices to fluctuate between A$33/mtCO2e and A$35/mtCO2e in the near term.

Trading activity is expected to slightly recover toward the end of March as the deadline for complying with Safeguard requirements approaches.

Some compliance entities always engage in "last-minute" buying, which may improve liquidity to some degree, according to market sources.


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