Platts ACCU prices spike to 1.5-year high on bullish liquidity amid future supply concerns: sources

The Platts assessment for both Generic and Human-Induced Regeneration Australian carbon credit unit prices jumped to an over one-and-a-half-year high on Nov. 18 on strong demand from end-users amid dampened ACCU supply outlook plaguing the market, according to data from S&P Global Commodity Insights and market participants.

Platts, part of Commodity Insights, assessed Generic ACCUs at A$42.15/mtCO2e, up A$1.30 on the day, and HIR ACCUs at A$42.35/mtCO2e, up A$1.40 on the session, marking an over one-and-a-half-year high, as these prices touched the highest level since their assessment launch on March 1, 2023.

Generic ACCUs are generated by avoided emissions-based projects, such as landfill gas and avoided deforestation, while HIR ACCUs are generated by projects that store carbon by regenerating permanent native forests through alternative land management practices.

About 1.8 million ACCUs traded in the week to Nov. 15, with generic without avoided deforestation making up nearly 50% of the total weekly volume traded at 885,000 mt. Human-induced regeneration ACCUs followed at 697,500 mt and Generic ACCUs at 200,000 mt.

Market participants have attributed this upturn in liquidity and higher prices to end-user demand, with Safeguard entities taking the lead, while some have also heard banks trading in the mix.

Prices will "absolutely" rise beyond A$45-50/mtCO2e levels by the end of 2024, some Melbourne-based developers said, while a China-based ACCU trader was more conservative in saying that it may be "possible" for prices to break past the mid-forties going into 2025.

"There will be ongoing activity leading up to the Safeguard's compliance deadline in March 2025, and the banks will buy up to eventually sell these ACCUs to the Safeguard entities who need them," the developer said.

Supply woes ahead

A Sydney-based broker suggested that the price action in the last few weeks pointed to Safeguard entities looking to buy before credits potentially become more expensive when volumes become scarce.

Many other carbon project developers and buyers in Australia have echoed the sentiment that there is a lingering supply uncertainty for ACCUs in the mid-to-long term due to the HIR method having expired in September 2023, while the EP method retired in September. Additionally, Clean Energy updated Oct. 25 that several methods will also expire by the end of March 2025.

"The lack of methods is affecting growth in supply in the mid-to-long term. For instance, we have landholders who, if the HIR of Integrated Lang and Farm Management method was available would have already registered projects, so that lack of IFLM method has delayed credits from being issued from those projects," the Melbourne-based developer said.

IFLM was set to allow the registration of new vegetation-based projects following the expiration of the popular Human-Induced Regeneration method in 2023, which accounted for one of the highest numbers of registrations among Australia's vegetation-based projects. However, the method was delayed due to the need for more consultation.

On Oct. 30, Platts reported that Australia's Department of Climate Change and Water prioritized the development of four new proponent methods under the Safeguard Mechanism. In this release, the EP method was said to be progressing well and should be finalized at the end of 2024, while IFLM was still in the works.

Meanwhile, there will be a significant undersupply of credits in 2026-27 even with the release of new methods because there is a considerable gap between the time when a project is registered under a method and when credits can be issued, especially for nature-based methodologies, a New South Wales-based developer said.

Nature-based projects are also known to issue limited credits in the early stages, with many project developers typically delaying the first issuance until the third year, Kakariki Capital Founder and Chief Investment Officer Izzy Jensen.

Platts assessed Environmental Planting ACCUs at A$49.55/mtCO2e, Savanna Fire Management Non-Indigenous ACCUs at A$42.25/mtCO2e, and SFM Indigenous ACCUs at A$48/mtCO2e on Nov. 18.

With demand soon to outstrip supply, developers said that it is unsurprising that ACCU prices have been rising rapidly as it would only take a few market participants to realize that they are short of their obligations for prices to increase accordingly.

Soil carbon as a quick fix

According to the Clean Energy Regulator's 2024 Quarterly Carbon Market Report data workbook, a total of 94 projects were registered under the soil carbon method, the highest it has been since 2019. A soil carbon project aims to store additional carbon in agricultural soils which results in a reduction of carbon dioxide levels in the atmosphere.

Based on this surge in project registrations, there were suggestions in the market that soil carbon could be the temporary replacement for HIR until the IFLM method is finalized by mid-2025 amid the limited number of existing methods available.

"The number of ACCUs generated from soil carbon projects is relatively low compared to other methodologies, [so] although there may be many registered soil carbon projects, the total volume of credits issued is likely to remain low. Additionally, soil carbon is a challenging methodology in terms of predictability; as a result, many of these projects may ultimately issue fewer credits than expected -- or potentially none," Jensen said.

One ACCU trader also said that not a lot of soil carbon projects have issued ACCUs, with some non-performing soil carbon projects that are no longer expected to yield any credits.

"Developers should start doing something under existing methods like Environmental Planting or soil carbon rather than just wait around until the IFLM method is launched. That being said, it would be great if soil carbon could replace HIR, but the credit yield and measurement complications make that unlikely," the trader added.

As for the price of soil carbon ACCUs, if they do come to market, market sources said that it will likely be priced similarly to the liquid segment of the market, hovering between Generic and HIR prices.

"Delays from the CER are creating uncertainty in the market, particularly for financial investors, which could restrict capital flowing into the sector. Australia has a unique opportunity to attract significant investment into its carbon market from both domestic and international sources, but [this requires] the government and the CER to create an environment of policy and regulatory certainty, [otherwise there may be] further supply constraints due to insufficient capital to fund the necessary projects," Jensen added.