Australian carbon markets started 2022 by setting a new record for trading activity, with the highest monthly volume of carbon units changing hands, just as the price of European emissions permits approaches its own major milestone.

According to carbon market analysts Reputex, Australia set a new monthly record for the volume of Australian Carbon Credit Units (ACCUs) traded in January, reaching almost 550,000 in spot and futures markets.

Despite the record activity, Reputex said ACCU prices also started the year with a relatively weaker run compared to the rapid rise seen throughout last year as spot prices tumbled 2 .65% over the previous two weeks to $54.50 a tonne.

The price of Australian offsets has undergone a dramatic increase over the course of 2021, with spot prices more than doubling in value over the year.

Voluntary demand for ACCUs has increased due to growing interest from corporate buyers, and Reputex attributed the price increase to the entry of new participants into Australia’s voluntary carbon market.

Several emitting companies have begun accumulating ACCUs to help meet their own commitments to net-zero emissions targets and in anticipation of future government policies that may require companies to reduce emissions towards a national commitment to a net-zero emissions target. net zero emissions.

Federal Labor has signaled that it could strengthen the existing safeguard mechanism if it forms government after the next election, further increasing demand for ACCU.

The safeguard mechanism imposes emissions caps on Australian industrial emitters and includes an allowance allowing companies to use ACCUs to offset their emissions and stay below their cap. If the caps were to be tightened, some issuers might choose to buy ACCUs to stay under their caps.

But Reputex chief executive Hugh Grossman said a recent decline in ACCU prices, leading to higher trading volumes, suggested some traders were taking advantage of the opportunity early to take advantage of higher prices.

“While the recent bull run was driven by smaller trades of around 5,000 units, the latest price declines have come on much larger sized packages – around 20,000 to 50,000 – suggesting that sellers have reached a happy level of price support in the mid-1950s to service larger volumes,” Grossman said.

“Around 250,000 units have traded on the spot market over the past two weeks, suggesting that corporate buyers remain keen to lock in prices and build their supply pipeline, while investors are still considering that the local market is undervalued compared to more mature systems such as the EU ETS.

The high prices have raised the prospect that some offset projects may seek to withdraw from ACCU sales contracts to the federal government – ​​most of which were concluded when ACCU prices were around $15 a ton. .

As detailed by RenewEconomy, it is possible that these projects will not meet their government plans and make a profit by selling ACCUs in the inflated spot market, even after taking into account contractual penalties.

Reputex pointed to the similar rise in prices for European emission units, known as EU emission allowances (EUA), which were approaching record highs of €100 per tonne (A$160), while the tightening of the caps forced companies to reduce their emissions.

The high prices seen in the EU scheme, Reputex said, could ultimately help spur investment in long-term emissions reduction measures. The EU Emissions Trading Scheme was first launched in 2005 and is considered one of the most ‘mature’ carbon markets, having undergone several key reforms.

“EUA prices continue to be supported by the more mature policy framework for this market, including the EU’s target to cut emissions by 55% by 2030, the expectation of higher prices to support investment in technologies to achieve net zero, such as green hydrogen, and the pricing needed to incent fuel switching,” Grossman said.

“While the European carbon price will not directly impact the local offset market, positive momentum could still impact ACCU prices, particularly as volumes increase and new entrants seek to replicate the gains seen in the EU ETS.”