Accelerating carbon abatement for Australia

The schemes we administer continue to accelerate carbon abatement. In 2023, 65.5 million tonnes of carbon dioxide equivalent (CO2-e) were abated. This is 5.5% more than 2022. This calculation is based on an Australian carbon credit unit (ACCU) being equivalent to 1 tonne of CO2-e. The calculation also conservatively estimates abatement of renewable energy that is incentivised by the Renewable Energy Target (RET). This is calculated by multiplying megawatt hours (MWh) by the rapidly declining emissions intensity of the grid (0.58 tonnes per MWh in 2023).

Alternatively, a thermal displacement method could be used to estimate renewable energy abatement. This alternative calculation multiplies the MWh of renewable energy by the weighted average emissions intensity of the thermal generation it displaced (0.94 tonnes per MWh in 2023). In 2023, using this method the schemes we administer contributed 95.9 million tonnes of CO2-e emissions reduction.

Explore further detail in the emissions reduction chapter.

Record ACCU inventory and Safeguard entities accumulate ACCUs

A record 11 million ACCUs were issued in the second half of 2023. This followed the previously reported reduction in issuances in the first half of 2023 owing to additional checks on human induced regeneration (HIR) projects. Annual supply did not meet the 2022 record of 17.7 million. The 17.2 million ACCUs issued in 2023 is the second highest annual supply. We expect to issue a record of at least 20 million ACCUs in 2024.

In 2023, 1.7 million ACCUs were delivered against Commonwealth carbon abatement contracts. These ACCUs are held in the cost containment reserve. Eligible Safeguard entities may buy ACCUs in the cost containment reserve at the reserve price. The Commonwealth has previously provided three pilot windows for contract holders to exit from their fixed delivery carbon abatement contract milestones. Delivery exit arrangements for future contract milestones are yet to be announced, following consultation at the end of 2023. The consultation was conducted by the Department of Climate Change, Energy, the Environment and Water (DCCEEW).

Holdings by some Safeguard entities increased by 4.1 million to 7.6 million ACCUs in the second half of 2023. In comparison to an increase of 0.6 million in the first half of 2023. These holdings will likely continue to grow as more entities acquire ACCUs to help meet their future compliance obligations.

Non-Commonwealth demand from ACCU cancellations and surrenders, including voluntary demand, continue to increase. In Q4 2023, a quarterly record of 0.8 million ACCUs were cancelled for non-Commonwealth demand, bringing the 2023 total to 1.7 million. Almost two thirds, 1.1 million ACCUs, were cancelled for voluntary purposes across 2023. The remainder were cancelled to meet local, state and territory government and compliance obligations. The 1.1 million ACCUs cancelled for voluntary purposes is an annual record and a 30% increase compared to the 0.9 million cancelled in 2022.

Explore further analysis and insights in the ACCU chapter.

Renewable energy generation records in the National Energy Market (NEM)

In Q4 2023, there was an average of 43% renewable energy generation in the NEM. This contributes significantly to the Australian Government’s 82% renewable electricity by 2030 target. Noting, the 82% target is an annual target and applies to the 5 grids across Australia. For the whole of 2023, renewable energy generation averaged 39%. In 2024, we expect an average of 42% renewable electricity.

Australia continued to deploy renewables at a rapid pace in 2023. It was the 6th year in a row of more than 5 gigawatts (GW) of total capacity being added, with 2023 totalling 5.3 GW. Over 90% of this capacity was added in the NEM.

Small-scale rooftop solar continues to grow with 3.1 GW of capacity installed in 2023. This is an increase from the 2.8 GW installed in 2022. We expect about 3.1 GW to be installed again in 2024. An annual record would be set in 2024 if the upward trend from 2022 to 2023 continues.

Final investment decisions (FID) are an indication of large-scale wind and solar investment. In 2023, 1.5 GW was announced, of which 0.8 GW was announced in Q4 2023. This was well down on the 4.5 GW announced in 2022. However, Q1 2024 started positively with 0.56 GW announced in January 2024. FID capacity is expected to be higher in 2024 driven by the expanded Capacity Investment Scheme (CIS).

At the end of 2023, 6.5 GW of large-scale capacity was under construction. This capacity is expected to reach first generation in 2024 to 2026.

Read more in the large-scale generation certificate (LGC) and state of total renewables chapters.

Record LGC supply and demand

In 2023, total LGC supply was a record 49.6 million, with 13.1 million LGCs supplied in Q4 2023. The key sources of LGC demand are the renewable power percentage (RPP), cancellations for shortfall charge refunds and voluntary demand. Total LGC demand in 2023 was about 43.9 million.

In 2023, liable entities surrendered 29.9 million LGCs towards their 2023 RPP compliance obligations. Some liable entities opted to take shortfall equal to 4.1 million LGCs, where a shortfall charge must be paid. Other liable entities carried forward 0.5 million LGCs, where the shortfall was less than 10% of their obligation. Liable entities that pay the shortfall charge are eligible for a refund if they surrender the equivalent number of LGCs within 3 years. In 2023, 5.3 million LGCs were surrendered for refund.

In Q4 2023, 0.75 million LGCs were cancelled for non-Renewable Energy Target (non-RET) demand to prove the use of renewable energy. This brought the 2023 total to 8.7 million, an annual record. We expect about 10 million LGCs to be cancelled for non-RET demand in 2024.

In 2023, the LGC spot price dropped to a low of $39.75 in February 2023. This drop is typical in February following the annual RPP surrender on February 14. The spot price then recovered to a peak of $58.75 in June 2023. In Q4 2023, the price fluctuated between $45.50 and $52.00, with 2023 ending at $49.50.

Read more in the LGC chapter.

Australians continue to invest in rooftop solar and air source heat pumps

In 2023, households and small businesses installed 331,000 rooftop solar systems and 135,000 air source heat pumps. The average rooftop solar system size in Q4 2023 was 9.8 kilowatt (kW), a quarterly record. The average rooftop solar system size with a battery was even bigger at 10.2 kW. Installing bigger systems with a battery can support home electrification. For example, charging electric vehicles and switching to electric appliances.

In 2023, 37.3 million small-scale technology certificates (STCs) were created. For the 2023 compliance year, liable entities surrendered 29.2 million STCs towards the 2023 small-scale technology percentage (STP). For the Q4 2023 compliance period, liable entities surrendered 5.0 million STCs.

The STC clearing house acts as a liquidity mechanism for the STC market. While the STC clearing house spent much of 2023 in deficit, it’s been in a modest surplus since September 2023. The growing surplus in the clearing house and in accounts likely influenced the STC spot price dropping slightly to $39.30 at the end of Q4 2023. Conversely from April 2022 to August 2023, the STC spot price fluctuated between $39.90 and $39.95. This is just below the STC clearing house price of $40. During this time, the STC clearing house was in deficit.

Read more in the STC chapter, including state and territory installation trends.

Table ES.1: Australian carbon credit unit (ACCU) and renewable energy certificate prices
Unit or certificateSpot price (31 December 2023)Change over the quarter

Data is sourced from Jarden and CORE markets.