Last Friday, Australia's Clean Energy Regulator announced new changes to the Emissions Reduction Fund, as well as a decision to share with carbon farmers and landholders the windfall profits generated from the change.
Angus Taylor, the Federal Minister for Industry, Energy and Emissions Reduction, revealed that carbon credit creators will be able to sell their Australian Carbon Credit Units (ACCUs) on the open market if they opt out of their contracts with the government.
The average fixed delivery price the government had agreed to pay for these credits was roughly AU$12 per ACCU, while an ACCU was worth around AU$50 on the open market.
Since prices on the open market were much higher, it was believed that this would result in windfall profits of $1.3 billion or more. However, during the last several days, ACCU prices have plummeted, casting doubt on the amount of potential windfall benefits as the market digests the revisions and their consequences.
The unexpected news that the regulator will actively allow carbon traders in properly exiting their contractual responsibilities, rather than attempting to hold projects to their contractual obligations, sent shockwaves to the carbon markets.
ACCU prices have plunges since the news came out. After trading at over AU$47 per ACCU just before the Regulator's announcement, their prices have dropped to around AU$30 per ACCU this week.
Developers who wish to create new carbon abatement projects have seen their potential income halved as a result of the price drop, possibly stifling investment in Australia's fledgling carbon market.
Several analysts believe that the price of ACCU will remain low, and that any potential windfall for farmers and landowners might quickly evaporate.
The Clean Energy Regulator, on the other hand, may have just freed up a supply of 13 million ACCUs every year for the next seven years. This deluge of ACCUs released from government contracts, according to carbon analysts, is poised to swamp the voluntary market, which is why ACCU spot prices have plummeted in recent days.
The ACCU plunged significantly after regulator’s proposed changes. (Source: Renewable Energy Hub/CORE Markets).