Australian Carbon Credit Units (ACCUs) have seen a significant drop in value after the government announced new changes to the carbon credit scheme earlier this month. Analysts predict that the plunge might last for years.
Angus Taylor, the Federal Minister for Industry, Energy and Emissions Reduction, announced on March 4 that carbon credit creators who have inked contracts with the government would be allowed to breach those contracts and instead sell the credits on the market for a greater price. The decision caused a drop in the price of ACCUs.
After Taylor's statement, ACCU prices plunged 24% to 35.4 Australian dollars per tonne of carbon dioxide, after reaching AU$57.50 in January. They were trading at AU$31 each on Thursday.
According to research released by carbon market analyst Reputex on Thursday, the new policy may increase the supply of ACCUs on the voluntary market by 7 million in the June quarter alone, and by as many as 112 million by 2033.
Hugh Grossman, RepuTex executive director, said it meant the market had a “mountain of supply to overcome.”
He added, “Depending on the timeline and scale of new demand from corporate and investor buyers, it could take two to three years for the market to soak up that surplus, and for prices to recover.”
The bigger issue, according to Grossman, is that the decreased prices and oversupply will put a halt to numerous projects that were underway. Projects on more marginal terrain or in industrial decarbonization activities, which is where analysts wish the market to go, will be unable to develop since they require $40-$50 per credit to be feasible.
But the government’s move can still be advantageous for certain businesses. Carbon credit creators with early contracts under the Emission Reduction Fund will be able to benefit from the move. GreenCollar, an environmental markets company is one of them.
The average fixed delivery price the government had agreed to pay for the credits was roughly AU$12 per ACCU. Businesses can profit if the market price exceeds the sum plus an AU$12 per unit penalty they pay for breaking the government contract.
Taylor's move, according to GreenCollar CEO James Schultz, effectively doubled the floor price of carbon units and would be a boon for farmers with carbon farming projects. They get at least 70% of the revenue from carbon sales, with the rest going to GreenCollar, he stated.