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. 

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The Clean Energy Regulator’s latest Quarterly Carbon Market Report predicts that the schemes will provide 57.1 million tonnes of emissions savings in 2021. That figure would represent an increase of more than 7% on the result delivered in 2020, when the schemes produced 53.1 million tonnes of emissions savings. The “conservative” estimate is based on the average emissions intensity of generation from all fuel sources.

However, the report notes that this emission intensity from all fuel sources is falling as the country continues to move towards more renewables. The March Quarter 2021 report also shows the continuing success of the Emissions Reduction Fund (ERF).

Key Takeaways from the quarterly report are:

• Auction 12, held on 12 and 13 April 2021, contracted 6.8 million tonnes of forward carbon abatement from 10 contracts at an average price of $15.99 per tonne, for a total commitment of $108 million.
• The Regulator expects the ERF to deliver Australian Carbon Credit Units representing 17 million tonnes this year, an increase of more than 6% on the record 16 million tonnes of 2020
• The Large-scale Renewable Energy Target (LRET) is on track to drive down emissions by 24.3 million tonnes – also an increase of 6%
• The third key pillar of the government programs – the Small-scale Renewable Energy Scheme (SRES) – is expected to provide the largest growth in emission reductions, with its 15.8 million tonnes of savings representing a 12% increase from 2020
• Rooftop solar was the strongest growth area under the SRES umbrella, with 792 megawatts (MW) worth installed in the first three months of 2021 – up 28% on the same period last year
• A total of between 3.5 and 4 gigawatts (GW) of rooftop solar capacity is now expected to be added across the country this year

The report also showed the Large-scale Renewable Energy Target of 33,000 gigawatt hours (GWh) was met by the end of January and that Australia has added a record 7.0 GW of renewable energy capacity in 2020. This is expected to result in an increasing oversupply in Large Scale Generation Certificates (LGCs) and may result in a softening of the LGC wholesale price over time.

No major large-scale renewable energy projects reached final close in the first quarter of the calendar year, but the Regulator expects between 2 and 3 GW of capacity will come online by the end of 2021 amid strong indications of healthy investment.

Voluntary private and state and territory demand for Australian Carbon Credit Units (ACCUs) and large-scale generation certificates (LGCs) reached record highs, rising 39% compared to the same quarter last year to 532,000 units and certificates.

Part of this was attributed to significant corporate commitments, with Coles Group becoming the latest major supermarket to commit to a target of net-zero emissions by 2050, joining Woolworths Group and ALDI.

The three major supermarket chains were responsible for a combined 1% of Australia’s reported emissions in 2019-20.

The Clean Energy Regulator is now assessing expressions of interest for the development of an Australian carbon exchange, with predictions that the implementation of such a program could slash business costs by as much as $100 million by 2030.

The exchange would make trading of Australian carbon credit units simpler and reduce transaction costs to support the rapidly increasing voluntary demand from the corporate sector. 

More information on the Clean Energy Regulator’s March Quarter 2021 Quarterly Carbon Market Report can be found in the highlights video below or here.

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