Richard Cargeeg (Finance Manager)
The last few months have seen significant activity in the carbon financial markets here at home and abroad, with wide ranging signals coming from these markets, so here are a few snapshots to hopefully help add some global and local context.
The Regulator held the 12th Emissions Reductions Fund (ERF) Auction on the 12th and 13th of April, which landed volumes of 6.8 million tonnes of Carbon Abatement at an average price of AU$ 15.99. Only 2% of this volume (and one of the 10 Carbon Abatement Contracts (CACs) signed), was for fixed delivery, with the majority being for optional deliveries. Despite this preference for optional deliveries since this form of contract has been available, fixed delivery still makes up about 90% of overall active contracts by number and volume. (If the idea of an optional contract sounds interesting, remember that project holders can only have one CAC at a time. So, if you currently hold a CAC, you can’t bid for another CAC – optional or fixed – until your first contract is completed.) This increasing participation in optional deliveries seems to indicate a growing willingness of participants to deal with the secondary market and take advantage of firmer pricing of late – recently around AUD$18 per ACCU.
It is interesting to note that of the 6.8 million tonnes in the 12th ERF auction, 50% was from one decarbonisation project run by ORICA Australia Pty Ltd (a mining company) aimed at improving the emissions intensity of operations on Kooragang Island using the Facilities methodology, the first of this methodology to secure a CAC.
More and more people are starting to ask about global prices for carbon credits. Currently, ACCUs – the type of carbon credits that you produce – cannot be traded internationally. That can be frustrating when you hear, for example, of current European Union Allowances (EUA) reaching €50/credit– a 50% rally over around 6 months. But the ACCU pricing stacks up very reasonably compared to some other international voluntary markets. Different countries, different sectors (e.g., offsets for the aviation industry) and different voluntary carbon programs each have their own circumstances that influence pricing. We’ll keep you posted if there’s any developments on allowing ACCUs to be traded internationally in the future. There’s certainly interest in pushing for this, although there are valid reasons for the current situation.
For now, at least, carbon market developments and the strengthening demand for carbon credits in Australia and internationally bodes well for the marketability of your project’s carbon credits over the years and decades ahead.