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1. Australian carbon credit units (ACCUs)

Key messages

  • Total ACCU holdings increased by 8.2 million over the first 3 quarters of 2022 to 19.7 million ACCUs.
  • Voluntary and state and territory cancellations are now tracking to 1.5 million for 2022, up from our original estimate of 1.1 million and up 93% year on year.
  • High levels of activity continued in the ACCU market with 8.4 million ACCUs transacted in the secondary market in Q3 2022, more than 4 times the level in Q3 last year.

Q3 2022 demonstrates increasing interest in the ACCU market. This was highlighted through record secondary market transaction volumes in the Australian National Registry of Emissions Units (ANREU) and reported spot trade volumes. Additionally, there was a material increase in ACCU holdings, to a new record of nearly 20 million.

There were several policy developments of consequence for the ACCU market in Q3 and early in Q4. On 18 August 2022, the Department of Climate Change, Energy, the Environment and Water opened consultation on reforming the Safeguard Mechanism. The reforms are scheduled to take effect on 1 July 2023 and are likely to have implications on ACCU demand from entities covered by the Safeguard Mechanism. Consultation closed on 20 September and submissions have been published.

On 10 October, the Australian Government opened consultation on the draft Safeguard Mechanism (Crediting) Amendment Bill 2022 that will provide the legal architecture for Safeguard Mechanism Credits. The bill ‘… provides a framework to address incentive overlaps from declining Safeguard Mechanism baselines, Safeguard crediting and opportunities to create Australian Carbon Credit Units1

On 8 September, Parliament passed the Climate Change (Consequential Amendments) Bill 2022. This enshrined the Australian Government's aim to reduce greenhouse gas emissions by 43% by 2030. Under this Act the minister will be required to table an annual statement to the parliament which will increase transparency on progress toward reaching net zero emissions by 2050.

Increase in ACCU Holdings

During the first pilot window of the contract milestone exit arrangement, 2.6 million ACCUs were released by making an exit payment of $29.7 million. The average contracted price for ACCUs released was $11.57/tonne of carbon dioxide equivalent (CO2-e).

In the March Quarter 2022 report, the Clean Energy Regulator suggested that participation in the pilot exit arrangement would only be commercially attractive to contract holders if the alternative price secured is at a commercial premium to double the contract price. Notably, the volume weighted generic spot price from 4 March to 31 August (the start of the first pilot window to the date applications closed) was $30.96, almost triple the average contract price associated with ACCUs released of $11.57. The generic ACCU spot price during the opening of the first pilot window would be sufficient incentive for participants to accept the exit arrangement because it is greater than the cost of the sum of the contracted price, the exit fees and a commercial premium.

Up to 3.2 million ACCUs under 1 July to 31 December 2022 delivery milestones are eligible to exit under the second pilot window. Contract holders wanting to use the exit window may request an extension to delivery milestones that fall within the second pilot window until 28 February 2023. Exit arrangement applications close on 14 February 2023.

It is likely the cause of the increase in ACCU holdings of 3.6 million during the quarter is an intentional accumulation strategy from a large number of account holders.

Market intermediaries, business and government enterprises categories have accumulated most of the increase in holdings this quarter, up 3 million ACCUs in total (see Figure 1.3). Both categories include entities covered by the Safeguard Mechanism. There could be a variety of motivations for the accumulation of ACCUs amongst these participants. These include the anticipation of Safeguard Mechanism reforms and increasing voluntary corporate emissions reduction targets.

Note: The breakdown of accounts in ANREU is based on ACCU transaction characteristics of individual accounts. It is not a representation of corporate entity characteristics. An entity controlling more than one account can be represented in the data in multiple categories.

Over the quarter, the reported generic ACCU spot price declined from $35.10 to $30.75 (see Figure 1.2). The price dropped to a low of $26.50 on 16 August before recovering as the volume of ACCUs traded increased in the second half of the quarter. As highlighted in the June Quarter 2022 report, the generic ACCU spot price increased around the Federal election. This demonstrated potential speculation on the 2030 greenhouse gas abatement target and changes to the Safeguard Mechanism. The price seems to have settled back to where it was prior to that increase, about double the contract price plus a commercial premium.

The ACCU market continues to exhibit stratification between generic, human-induced regeneration (HIR) and savanna fire management ACCUs. HIR ACCU premiums were relatively stable, receiving a $3 premium on average per ACCU during Q3. The proportion of HIR ACCUs fell from 58% in Q2 to 42% of reported spot volume in Q3. Savanna fire management ACCUs continued to trade at a premium to generic ACCUs, with the reported spot price for these units averaging $45 in Q3, albeit off a small number of trades.

ACCU transaction volumes increase

There has been a notable increase in ACCU market activity in 2022. Much of this was observed in Q3 as liquidity increased and ACCU prices became more stable. Record transaction activity from Q2 continued in Q3 with nearly 8.4 million ACCUs transacted in the secondary market during the quarter. This is more than 4 times the volume transacted in the same period in 2021 (see Figure 1.1). Activity consolidated during the quarter at over 2.5 million ACCUs transacted per month. The average transaction size also increased in Q3, up 48% on the same period in 2021.

During Q3 2022, intermediaries reported continued interest from market participants with 600,000 ACCUs agreed on forward delivery trades and 250,000 ACCUs on call/put options trades. Unlike last quarter, most of these agreements were written for delivery in 12 months or less. The ability of market participants to contract for forwards and options suggests that the ACCU market is maturing, demonstrated by a growing number of instruments for hedging purposes.

Voluntary and state and territory demand for ACCUs

Voluntary and state and territory cancellation of ACCUs experienced greater than expected growth over 2022 to the end of Q3. Total ACCU cancellations year to date were 1.2 million, a 93% increase over the same period in 2021. This exceeds the 1.1 million estimate from the December Quarter 2021 report. Chevron Australia has driven much of this growth as part of its commitment to cancel credible offsets (including ACCUs) to address a carbon dioxide (CO2) injection shortfall at the Gorgon natural gas facility.

73 entities (including Chevron) cancelled over 476,900 ACCUs in the quarter, more than double the number of units cancelled in Q3 2021 (see Figure 1.5). In addition to strong demand from existing participants, there is sustained entry of new participants to the market, with 25 of the 73 entities cancelling ACCUs for the first time during the quarter.

Cancellations for Climate Active purposes over 2022 to the end of Q3 was 478,000 ACCUs, 41% increase from the same period in 2021 (see Figure 1.4). This continues a longer-term uptrend in ACCUs being used for Climate Active certification, although ACCUs represent a small proportion of total unit and certificate cancellations in Climate Active.

ACCU supply balance

ACCU issuance in Q3 2022 was 5.7 million (see Table 1.1), 18% higher than Q3 2021. Year to date issuances were 13.9 million compared to 13.6 million in 2021. Total issuances are on track to exceed 18 million in 2022 in line with the Clean Energy Regulator's estimate.

Table 1.1: Balance of supply and demand Q3 2022
Balance/supply of ACCUs from Q2 2022 16,096,746
ACCUs issued Q3 20225,678,945
ERF contract deliveries-1,557,527
Safeguard cancellations2-50,000
Voluntary cancellations-476,905
ACCU relinquishment30
Net balance at the end of Q3 2022 19,691,259

Within a specified period, supply of ACCUs refers to ACCUs issued. Demand of ACCUs incorporates Commonwealth ERF contract deliveries, safeguard mechanism cancellations, relinquishments and state and territory government and private sector voluntary cancellation.

302 Emissions Reduction Fund projects were registered in 2022 to end of Q3, more than in any previous year in total (see Figure 1.5). Soil carbon and vegetation projects continue to dominate new registrations. However, the soil carbon projects are relatively small in scale. As such, increasing project registration number may not result in proportional increase in future ACCU supply. Supply of units from some of these projects could start to flow from late 2023, however some projects may take longer to get to first crediting than others.

ERF data deep dive

The documentasset:QCMR data workbook - September Quarter 2022 contains additional data on trends in ACCU pricing. Updated information on the voluntary and state and territory demand and issuance by ERF method type is also available.


1 See Safeguard Mechanism Crediting bill opens for consultation.

2Safeguard mechanism cancellations do not include deemed cancellations. A 'deemed' cancellation occurs when ACCUs issued under an ERF project at a safeguard facility, in a particular year, are delivered to the Commonwealth under an ERF contract.

3For more information see Australian Carbon Credit Units.

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