auto_stories Quarterly Carbon Market Report December Quarter 2024

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• Safeguard Mechanism
• Holdings by safeguard entities rise ahead of surrender
• Market dynamics
• ACCU cancellations by demand source
• 2024 ACCU issuances and project registrations
• 2025 ACCU issuances expected at between 19 and 24 million
• Supplementary figures

Safeguard Mechanism

The Safeguard Mechanism is designed so that facilities can generate SMCs by reducing onsite emissions and getting below their baseline. Default emissions intensity values under the policy have generally been calculated based on industry average emissions intensity values. These industry average baselines provide an incentive for production to occur where it is least emissions-intensive, while facility-specific baselines recognise individual facility circumstances and keep initial costs low. By starting the weighting closer to facility-specific values, costs are introduced in manageable increments, giving business sufficient time to plan and implement emissions reduction projects. 

Facilities that are more emissions intensive may be above their baselines and incur a liability. Facilities with a liability can either surrender ACCUs or SMCs, or use flexibility measures under the Safeguard Mechanism such as multi-year monitoring periods (MYMPs).

The Climate Change Authority (the authority) published early analysis of the outcomes of the first compliance period under the reformed Safeguard Mechanism on 15 November 2024. Based on as-reported National Greenhouse and Energy Reporting (NGER) data as of 31 October, and before use of any of the excess emissions options available under the Safeguard Mechanism, the authority’s report indicated that:

• 153 of the 215 covered facilities had emissions higher than their baselines, by an estimated aggregate amount of 10.7 Mt CO₂-e.
• 60 facilities reported emissions below their baseline and could be eligible to apply for a total estimated 9.2 million SMCs in 2023–24. 

Following the CER’s quality assurance processes and the assessment of applications under flexibility and excess management options, the CER:

• Expects 144 facilities to have a total excess of approximately 9.2 MtCO₂-e.
• Has issued over 8 million SMCs to facilities.

The total excess may still change, as ‘borrowing adjustment’ applications, which allow a facility in excess to borrow up to 10% of its baseline from the following year, are yet to be included in these figures. 

We will continue to report progress with complete data from the first compliance period to be published by 15 April 2025.

The CER is not anticipating substantial volumes of SMC trade prior to 31 March 2025. Market intelligence suggests safeguard entities are more likely to bank SMCs to meet their future liabilities rather than trade on the open market.

The CCM is a source of ACCUs for safeguard entities in an excess position. Safeguard facilities that have exceeded their baseline can apply to purchase ACCUs from the CCM at a fixed and known price during the current 17 February to 5 March 2025 window. The 2024-25 price is $79.20 per ACCU. The price is indexed in future financial years by the Consumer Price Index (CPI) plus 2% each year. We do not expect responsible emitters to use the measure in 2024–25 as ACCUs are readily available in the market for around $35.

Looking beyond this compliance year, baselines will continue to decline at 4.9% per year and generally transition from facility-specific to industry average emission intensity values over the period to 2030. Overall, covered facilities will reduce net emissions cumulatively by approximately 200 MtCO₂-e by the end of the decade as part of meeting Australia’s legislated emission reduction target of 43% below 2005 levels by 2030.

Holdings by safeguard entities rise ahead of surrender

Holdings in the ANREU totalled just under 50 million ACCUs at the end of 2024, with safeguard or safeguard-related entities holding around 60% of these units. Some accounts previously categorised as safeguard related have been reclassified to safeguard. This is because they can now be linked to a responsible emitter that has operational control of a safeguard facility. The classification of ANREU accounts is indicative only because entities may participate in the market for multiple reasons. For example, a safeguard entity may also act as an intermediary and trade ACCUs with other entities. Safeguard entities can also arrange to have ACCUs surrendered on their behalf and do not need to maintain holdings directly.

The Commonwealth received 2.4 million ACCUs in the fourth pilot exit window for ACCU fixed delivery exit arrangements, which covers delivery milestones between 1 July 2023 and 31 December 2024. These arrangements provide eligible participants with an option to exit their carbon abatement contracts, subject to conditions such as a minimum partial delivery requirement of 20%. ACCUs delivered under the exit window are added to the CCM, which can be accessed by safeguard participants. The fourth pilot exit window has increased the CCM to 3.9 million by the end of 2024. 

Market dynamics

Table 1.1: ACCU supply and demand summary for Q4 2024

*This refers to ACCUs delivered under Commonwealth carbon abatement contracts in 2024. These ACCUs are held in the cost containment measure. These ACCUs are available to eligible safeguard entities for purchase at a fixed price of $79.20 for 2024-25.

The generic ACCU weighted-average spot price reached a peak of around $42 in mid-November. The price then retreated to close out the year at around $36. This drop in price started to occur when most safeguard entities had calculated their emissions positions and secured their ACCUs in the lead up to November. 

Prices have since fallen slightly to around $35 by mid-February. 

ACCU cancellations by demand source

1.3 million ACCUs were cancelled for non-safeguard purposes in 2024. Of this total, 0.2 million were cancelled by entities for non-safeguard compliance purposes such as Environmental Protection Authority requirements. The remaining 1.1 million were cancelled voluntarily. This is slightly lower than our estimate of 1.4 million and is lower than the 1.7 million surrendered in 2023. We expect non-safeguard ACCU cancellations to remain relatively stable in 2025 at between 1.3 to 1.5 million. 

1.5 million ACCUs were cancelled for safeguard purposes in the 2024 calendar year. Of this total, 0.6 million were cancelled in late 2024 for the 2023-24 reporting year, ahead of the 31 March 2025 surrender deadline. The remaining 0.9 million were cancelled in the first few months of 2024. The majority of these cancellations were to meet obligations for monitoring periods ending 30 June 2023.

2024 ACCU issuances and project registrations

ACCU issuances in 2024 reached 18.8 million ACCUs, driven by issuances of 6.2 million ACCUs in the final quarter of the year. This is in line with our revised estimate and is 1.6 million more than 2023 issuances. Higher issuances were driven by Waste method projects which were 1.3 million higher than in 2023. This was because a larger proportion of Waste method ACCU submissions were made in December 2023. Most of these submissions were issued in 2024.

The Orica Kooragang Island Decarbonisation Project is the first Facilities method project to be issued ACCUs. This project which was first issued ACCUs in Q3 was issued a further 0.5 million ACCUs this quarter. This was the largest single issuance ever to an ACCU Scheme project. 0.6 million ACCUs have been issued to this project in its first year of claiming.

425 projects were registered under the ACCU scheme in 2024, an 18% increase from 2023. This increase was driven by soil carbon projects registered in the second half of 2024. 

In October 2024, the Australian Government announced 4 new prioritised proponent-led methods for development. The interim proponent led process involves ACCU Scheme methods being developed outside of government by groups or organisations. This approach was a recommendation from the 2022 Independent Review of ACCUs. It augments the ongoing work by the Department of Climate Change, Energy, the Environment and Water in finalising priority methods to generate new ACCUs. The updated Environmental Plantings method was made in November 2024. Exposure drafts of the department led methods – the reformed landfill gas method, new integrated farm and land management method, and new savanna fire management method – are expected to be delivered in the first half of 2025.

Delivery of these new methods will provide further support to the ACCU supply pipeline later this decade.

2025 ACCU issuances expected at between 19 and 24 million

The CER expects ACCU issuances in 2025 to be between 19 and 24 million. The CER will refine this range across the year. As shown in Table 1.1, expected 2025 issuances comprises 3 key categories with the following factors likely to affect the final outcome:

• 3.7 million ACCUs where the CER already holds claims and could issue the ACCUs in 2025 (‘ACCUs from claims on hand’), subject to assessment outcomes. This includes around 0.5 million ACCU claims submitted by 38 projects that have not previously been issued ACCUs.
• 14 to 15 million ACCUs from over 500 projects that have reported in the past. This figure refers to ACCUs that are expected to be claimed and issued in 2025, based on past claiming behaviour. The estimate incorporates that a proportion of ACCUs submitted in 2025 will be issued in 2026.
• Between 1.5 to 5.5 million ACCUs from projects that may report for the first time. This figure involves a high degree of uncertainty because there is less information available on the volume of abatement until projects begin reporting. This timing of first reporting is also uncertain because reporting periods can be up to a maximum of 2 years and 5 years for emissions avoidance and sequestration projects, respectively. Project start dates can also be varied, further adding to the uncertainty of when projects will first report. Total ACCU issuances in 2025 could vary significantly depending on the outcomes from just one or two projects. For example, the Moomba carbon capture storage (CCS) project commenced operations in October 2024 and is the first ACCU project of its kind. However, the size of their first claim will not be known until the application is submitted. This can have a material impact on supply for the year. As the Moomba CCS project reduces covered emissions at a safeguard facility, the number of ACCUs issued in relation to the project will be added to the net emissions number of the Moomba facility, to ensure that the carbon abatement is not counted twice. 

Table 1.2: Estimated Australian carbon credit unit (ACCU) issuances by source

Supplementary figures