Macquarie Initiates Coverage on Australian Carbon Market: What Investors Need to Know
As Australia strives to meet its commitments under the Paris Agreement, the Australian carbon market is becoming a crucial player in reducing industrial emissions. The market, operating under the Safeguard Mechanism, covers approximately 140 million tonnes of greenhouse gas emissions annually, representing about 28% of Australia's total emissions.
High-emission industries like mining and oil and gas extraction are required to follow strict rules by using Australian Carbon Credit Units (ACCUs) or Safeguard Mechanism Credits (SMCs) to reduce their emissions. The market operates as a hybrid system, blending compliance with voluntary carbon offsetting mechanisms, allowing companies to minimize compliance costs while meeting their obligations.
Analysts predict a supply-demand gap to open in FY 2027, driven by baseline reductions and the addition of new high-emission facilities. This gap will lead to increased demand for ACCUs, with compliance demand projected to rise significantly by FY 2030.
While the market is currently oversupplied, as compliance obligations become stricter, the surplus is expected to diminish, tightening the market. Prices for ACCUs are projected to increase as demand outpaces supply, with estimates converging around A$55 per tonne in the long term.
However, analysts have noted risks, such as a possible oversupply of ACCUs due to an increase in project registrations. Regulatory events in 2025 and the launch of the Integrated Farm and Land Management (IFLM) program by FY 2026 could also impact the market.
In conclusion, investors should keep an eye on the Australian carbon market as tightening regulations and increasing demand for ACCUs could lead to potential investment opportunities in carbon offset projects. Stay informed and consider the implications of market dynamics on your investment portfolio.