auto_stories Quarterly Carbon Market Report June Quarter 2025

Australian environmental markets

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• Progressing the second year of the reformed Safeguard Mechanism
• Strong ACCU issuances with some residual SMC issuances in Q2 2025
• Longer-term ACCU supply influenced by new methods
• Method development
• Six ACCU methods sunsetting with 2 under review
• ACCU and SMC holdings build ahead of the 2024-25 safeguard compliance period
• Non-safeguard related ACCU cancellations grow in Q2 2025
• Small increases in ACCU and SMC spot prices
• First Nature Repair Market project registered and 2 new methods under development
• Improvements to market data transparency and infrastructure

Progressing the second year of the reformed Safeguard Mechanism

With the first compliance year of the reformed Safeguard Mechanism successfully completed, safeguard entities will be turning their attention to potential on-site abatement opportunities and ensuring they have sufficient supply of ACCUs and SMCs to meet their upcoming 2024-25 compliance obligations.

While the result from the first year was promising, the continuing abatement challenge is substantial. Baselines will continue to decrease at a default rate of 4.9% per financial year, aligning with the scheme's 2030 emissions reduction target. 

• For existing safeguard facilities, the scheme specifies a ‘hybrid’ approach to baselines, initially focusing on facility-specific emissions intensity values and gradually transitioning to industry-average values by 2030. This approach incentivises production in sectors with the lowest emissions intensity, while also considering individual facility circumstances to keep initial costs manageable. By starting with values closer to facility-specific metrics, costs are introduced in increments, allowing businesses time to plan and implement emissions reduction projects.
  • For 2023-24, the industry-average to facility-specific emissions-intensity values ratio was 10:90 and for 2024-25 the ratio will shift to 20:80. The transition to industry-average emissions-intensity increases from 10% per year to 20% from the 2027–28 financial year.
• For new facilities, baselines will be determined using emissions intensity values set using international best practice levels and adapted for the Australian context. The baseline for shale gas facilities is set to zero tonnes of carbon dioxide equivalent (CO₂-e) per year.

Overall, the combination of a shift to industry averages and annual declining baselines creates incentives for both onsite emissions reduction projects and demand for ACCUs and SMCs. While on-site abatement is critical, many of the required investments will take time, and the use of robust offsets remains essential to support this transition, particularly for hard-to-abate sectors. The CER expects to publish preliminary estimates of gross and excess emissions positions later this year.

Looking beyond 2030, the Australian Government has submitted Australia’s next Nationally Determined Contribution (NDC) under the Paris Agreement to the United Nations Framework Convention on Climate Change (UNFCCC) and published a new Net Zero Plan. The Net Zero Plan and NDC includes Australia’s 2035 emissions reduction target of a 62 – 70% reduction on 2005 levels, calculated as an emissions budget for the years 2031 to 2035. Settings under the existing Safeguard Mechanism will be reviewed in 2026-27, including the decline rate for the period to 2035, to ensure the scheme’s design is appropriately calibrated and effectively delivering emissions reductions in line with Australia’s targets. These processes will continue to involve consultation led by DCCEEW and advice from the Climate Change Authority (CCA). 

Notes:

• Totals may not sum due to rounding.
• *This refers to ACCUs delivered under Commonwealth carbon abatement contracts in the quarter. These ACCUs are held in the cost containment measure and are available to eligible Safeguard entities to purchase at a fixed price of $82.68 for 2025-26.
• ** 0.2 million ACCUs were surrendered to meet 2023-24 safeguard compliance during the quarter. This occurred after the surrender deadline as part of an enforceable undertaking.

Strong ACCU issuances with some residual SMC issuances in Q2 2025

ACCU supply is on track to meet the CER’s estimated range of 19 to 24 million for 2025. 

In Q2 2025, 6.5 million ACCUs were issued, 67% higher than the 3.9 million in the same period last year. In Q2 2025, around 0.97 million ACCUs were issued to 37 projects claiming for the first time. The backlog of waste method crediting applications discussed in the Q1 2025 Quarterly Carbon Market Report (QCMR) was cleared in Q2 2025. This led to the second highest quarter for waste ACCU issuances (2.6 million). 

Processing times have declined with a continued focus on the timely assessment of crediting applications supported by quality applications being submitted that require fewer requests for further information. At the end of Q2 2025, around 200 crediting applications were on hand for an estimated total of 7.4 million ACCUs, 82% of which were submitted in the quarter. 

Where a safeguard facility with emissions below its baseline is eligible for SMCs, there is no deadline by which these SMCs must be claimed. In Q2 2025, one entity claimed 18,600 SMCs relating to the 2023-24 compliance period. On 1 August 2025, the 2023-24 safeguard data highlights were updated accordingly. At the end of Q2 2025, 185,000 SMCs are yet to be claimed.

In Q2 2025, 99 ACCU Scheme projects were registered, including 57 under the soil carbon methods. Additionally, 37 avoided deforestation projects finished their crediting periods. A further 11 avoided deforestation projects will finish their crediting period in 2025. Once projects finish their crediting periods and submit a certificate of entitlement for their final ACCUs, they will no longer contribute to ACCU supply. 

The native forests protected by these projects must be maintained for their permanence period, which for all but one of these projects is 100 years. The projects must continue to submit reports every 5 years. If any reversal of abatement is recorded, the CER has the power to require the relinquishment of ACCUs. In 2024, 1.9 million ACCUs were issued to the 48 avoided deforestation projects finishing their crediting periods this year, contributing 10% of total 2024 supply. After these 48 avoided deforestation projects have completed their crediting periods, 14 active avoided deforestation projects will remain. 

On 21 May 2025, crediting period and permanence period dates were added to the ACCU project register as part of the first tranche of transparency updates. Further information on these updates see more ACCU project register transparency improvements.

Longer-term ACCU supply influenced by new methods

ACCU supply is expected to grow over the coming years, driven by additional methods, and expected increases in project registrations. Recent progress on new ACCU methods includes DCCEEW consulting on a new draft landfill gas method, a proposed variation of the animal effluent management method, a new abatement calculation tool for savanna fire management, 2 new proposed savanna fire management methods and ongoing work to develop the proposed Integrated Farming and Land Management method. These supply-side developments have likely contributed to shifting market sentiment with less concern around tightening supply in coming years. 

The future ACCU supply-demand balance will be influenced by decisions on both the supply and demand side that naturally have long lead times:

• On the supply side, the average lead time from project registration to first credit issuance is just under 2 years.
• On the demand side, the dominant source is safeguard entities’ who will consider the lead time and cost-effectiveness of onsite decarbonisation investments, impacting their future ACCU demand. 

These characteristics suggest periodic cycles of tightening supply can be expected over time. 

The CER will continue to monitor and analyse trends in these increasingly complex and interconnected markets. 

Method development

Market participants have shown increased interest in and sensitivity to the potential impact of new methods on ACCU supply over the last quarter. As methods sunset or are reviewed, and new methods are developed the CER expects market interest will be sustained and amplified. 

It is important to note that all changes to methods and the making of new methods are subject to public consultation and consideration by the Emissions Reduction Assurance Committee (ERAC) that provides advice to the Minister on the making of new methods. The ERAC is yet to provide advice for methods under consultation. Great care should be taken in making assumptions about the potential volume and timing of ACCU supply until the methods are finalised. Crediting will depend on the final method settings, and the choices made by individual project proponents.

Six ACCU methods sunsetting with 2 under review

ACCU methods automatically end or ‘sunset’ after 10 years. This means no new projects can be registered under these methods once sunset, but existing projects continue as normal. The following methods are sunsetting on 1 October 2025: 

• Beef cattle herd management 2015
• Estimating sequestration of carbon in soil using default values 2015
• Facilities 2015
• Oil and gas fugitives 2015
• Reducing greenhouse gas emissions from fertiliser in irrigated cotton 2015
• Reforestation and afforestation 2.0 2015

These methods, except for beef cattle herd management and reforestation and afforestation, have had low or no uptake since creation. These methods will be reviewed by the ERAC, who will consider and provide advice on the potential to remake the methods.

New landfill gas method

The draft new landfill gas method is with the ERAC to determine if it meets the offsets integrity standards following public consultation which closed in June 2025. The new method addresses recommendation 10 of the Independent Review of Australian Carbon Credit Units (Chubb Review) to have upward sloping baselines. This accounts for the business-as-usual emissions reduction likely to occur at landfills without the ACCU Scheme. 

It is proposed that projects transitioning to the new landfill gas method will be able to extend their crediting period for up to 12 years. The extension is significant as 74 landfill gas projects (representing 43% of total landfill gas projects) have crediting periods ending in 2026. These projects account for around 3.8 million ACCUs each year, and about 80% of annual issuances from landfill gas projects. 

The extension of crediting periods means that projects ending in 2026 would remain a material part of ACCU supply until 2038. CER estimates that issuances to landfill gas projects could fall from current levels of 4 to 5 million ACCUs to below 4 million over time. This gradual decline is driven by upwards sloping baselines under the new method. The CER will continue to monitor supply impacts from the new landfill gas method, which depends on factors such as the number of new projects registered and when existing projects transition to the new method.

New savanna fire management methods

DCCEEW is developing 2 new savanna fire management methods. On 14 August 2025, DCCEEW released public consultation material on the methods. 

For the first time, a savanna fire management method is proposed to account for sequestered carbon in living and dead biomass, enabled by improvements in scientific modelling. On 13 June 2025, the Savanna Carbon Accounting Model (SavCAM), which is proposed to estimate abatement from these methods, was released for testing by DCCEEW. The tool incorporates the latest science and an independent assessment by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) has confirmed its abatement estimates are valid. Because the proposed method would credit sequestration in these additional carbon pools, SavCAM shows that on average, credited abatement for most projects is likely to be higher than under earlier savanna fire management calculators.

ERAC will formally invite public submissions on the methods, possibly commencing in October 2025. The feedback will inform the ERAC’s assessment of whether the methods meet the legislated Offset Integrity Standards, prior to making a recommendation in relation to the proposed methods.

ACCU and SMC holdings build ahead of the 2024-25 safeguard compliance period

At the end of Q2 2025, ACCU holdings, excluding the cost containment measure, rebounded to 51.7 million. This followed ACCU holdings dipping to 46.0 million at the end of Q1 2025 after the surrender period for the 2023-24 safeguard compliance year. Safeguard and safeguard-related holdings had the largest increase, rising from 27.4 million at the end of Q1 to 29.8 million at the end of Q2 2025. Business holdings (that is, holdings by businesses for their own voluntary purposes) also had a large proportional increase of 64%, rising from 0.4 million ACCUs at the end of Q1 to 0.6 million ACCUs at the end of Q2 2025. Holdings are categorised based on the available information for accounts, so values should be treated as estimates. 

At the end of Q2 2025, 18 safeguard corporate groups held over double the ACCUs surrendered to meet their 2023-24 compliance obligation. However, these ACCUs could be held for a range of purposes in addition to safeguard compliance, including surrender against voluntary targets, or for another entity.

With varying hedging strategies, safeguard entities’ ACCU holdings are only one indication of a forward ACCU position and may be an underestimation. For example, market intelligence suggests safeguard entities are entering into longer-term offtake agreements with ACCU projects, where the safeguard entities agree to buy a share or all the future ACCUs issued. In this case the future holdings of ACCUs cannot be determined as these agreements are not visible.

More broadly, carbon market dynamics are evolving as safeguard entities look to secure their future supply of ACCUs and SMCs at the desired price to meet potential excess emissions. The market has observed the rise of more sophisticated derivative instruments and use of futures contracts as safeguard entities and financial intermediaries hedge against potential future ACCU price movements. 

At the end of Q2 2025, 6.9 million SMCs were held in the Unit and Certificate Registry. Of these, 6.7 million were held by a safeguard or safeguard-related entity and 0.2 million SMCs were held by intermediaries. Most SMCs (88%) were held by the responsible emitter they were issued to or a related entity, including subsidiaries or other entities in the same corporate family. SMCs are not offsets and can only be surrendered to meet safeguard compliance obligations. As such, it is unsurprising for SMC holdings to be concentrated in the receiving entities account in the early years of the reformed scheme.

Non-safeguard related ACCU cancellations grow in Q2 2025

The lower end of the CER’s estimated range of 1.3 to 1.5 million ACCU cancellations, excluding safeguard surrenders, is expected to be observed in 2025. In Q2 2025, 0.5 million ACCUs were cancelled for voluntary, non-safeguard compliance and government purposes, bringing the total to 0.7 million for the first half of 2025.

Small increases in ACCU and SMC spot prices

The generic ACCU weighted-average spot price rose from around $33 at the end of Q1 2025 to around $35.50 at the end of Q2 2025. Prices increased to around $36.95 on 22 August 2025. Generic (no avoided deforestation) ACCU trades made up 61% of reported transactions in Q2 2025. This is despite generic, generic (no avoided deforestation) and human-induced regeneration ACCUs trading at similar prices. Transactions involving safeguard or safeguard-related entities fell from 43% in Q1 2025 to 33% in Q2 2025. This is expected to increase later in the year ahead of the 31 March 2026 safeguard surrender deadline. 

As expected, there was limited SMC trading in Q2 2025. During Q2 2025, 27 transactions for a total 375,000 SMCs were recorded in the Unit and Certificate Registry. The SMC spot price increased over Q2 2025 from $33.00 to $35.00. However, SMC transactions are low compared to ACCU transactions, and the market is new, resulting in prices being more volatile. The price spread between SMCs and ACCUs has tightened. In April 2025, the reported SMC price was around $1.80 lower than the generic ACCU spot price, tightening to around $0.50 lower at the end of June 2025.

First Nature Repair Market project registered and 2 new methods under development

On 12 August 2025, the CER approved the first project under the Nature Repair Market. The Biodiversity Market Register on the CER’s website provides details on the first registered project. The Biodiversity Market Register will be updated regularly. At the end of Q2 2025, there were 2 applications on-hand for Nature Repair Market projects. Both applications and the approved project overlap with existing ACCU Scheme projects. Proponents may be able to streamline implementation and administration of each project when delivered in this manner.

At the end of Q2 2025, another two Nature Repair Market methods were under development by DCCEEW.

Improvements to market data transparency and infrastructure

More ACCU project register transparency improvements 

As reported in the Q1 2025 QCMR, amendments to the Carbon Credits (Carbon Farming Initiative) Rule 2015 allowed the CER to publish more information in the ACCU project register. Updates were actioned in 3 stages over May to July 2025. Changes since the Q1 2025 QCMR include the type of estimation or modelling approach used by the project to calculate carbon abatement and where applicable, abatement modelling start dates. These changes increase transparency to support market participation and informed decision making. The CER is also making it easier for project proponents to voluntarily publish additional information about their project on the register. This will provide even greater transparency and information to the market. 

ACCU migration to the Unit and Certificate Registry is on track

The Unit and Certificate Registry is built on Trovio’s CorTenX technology. It will continue to deliver a modern and secure place to hold and transfer units and certificates to support Australia’s expanding carbon and environmental markets. 

The Unit and Certificate Registry currently holds SMCs. ACCUs are on track to be migrated from ANREU in late 2025. The forthcoming Renewable Electricity and Product Guarantee of Origin certificates and Nature Repair Market biodiversity certificates will also be held in the unit and certificate registry. 

The Unit and Certificate Registry will enrich the information associated with each ACCU, and in future will enable more digital interoperability. Responses to the consultation run in late 2024 by the CER indicated broad support for interoperability, to allow external account holder systems and third-party platforms to connect to the Registry. In July and August 2025, the CER held targeted consultation to inform prioritisation of interoperability functions and models. Next steps for wider public consultation will be published on the CER website in the coming months. 

The Unit and Certificate Registry will make it easier to view, filter and sort holdings by attributes. Attributes are immutable pieces of information, such as project method and location. The CER consulted on additional attributes during April and May 2025. A full list of these attributes will be published on the CER website prior to the ACCU migration. 

The CER expects to add more functionality such as customised tagging of units and certificates within the next year. These additions align with information collected for the project register and in response to feedback received from consultations on the Unit and Certificate Registry.

Once ACCUs are migrated to the Unit and Certificate Registry, ANREU will remain operational to host certified emission reductions. In the first half of 2025, certified emission reductions were valued at $0.31 - $0.77, depending on vintage. Insights from CER discussions with holders of certified emission reductions suggest the trading environment for these units is uncertain. Many market participants are looking for buyers and voluntary cancellation options. Timing on when trading activity and cancellations may occur seems to be driven by a range of factors. These include corporate annual emissions inventory cycles, forward contract delivery timeframes, and expectations around future demand. 

The CER will continue to prioritise the useability, functionality and interoperability of the Unit and Certificate Registry. 

Integrity and transparency

Over Q2 2025, the CER reviewed and verified the status of projects that have missed or are near their reporting deadline. When projects miss their reporting deadlines, the CER actively engages with project proponents to bring them back into compliance. However, some projects are not reporting because the project is no longer proceeding. This may be because regulatory approvals or consents could not be obtained, or the proponent has chosen not to proceed with the project. 

During Q2 2025, the CER contacted 70 projects proponents regarding missed reporting deadlines. The CER expects some of these projects to be revoked over the coming months. Project revocations are a standard compliance process to ensure the ACCU Scheme operates with integrity. While this may result in fewer active ACCU projects, this will have a negligible impact on overall projected ACCU supply as a percentage of revocations is already assumed in ACCU supply projections.