Australian carbon project developer Corporate Carbon has been expanding its trading capabilities around Australian Carbon Credit Units (ACCUs) on the back of growing supply and wider market maturity. Head of carbon trading Angus Robertson spoke with Argus about the latest developments in the market.
Corporate Carbon is one of the biggest suppliers of ACCUs. Is it correct that the company has been issued around 15mn ACCUs, counting both fully-owned projects and partnerships, which would be around 10pc of all ACCU issuances since the scheme started in 2011?
Yes, that's the approximate number. We've got around 100 projects. In terms of issuance from a mix of owned projects and offtake agreements with other developers and partners in the industry, the approximate forecast is around 3mn ACCUs/yr. We trade around that and then also have capacity to trade outside of our own projects and within the portfolio, plus operating as a trading entity in the secondary market.
The company has been one of the main suppliers to private buyers, and to the federal government through carbon abatement contracts (CACs). But you are also buyers. How does that work?
The increased capability of our business to both buy and sell is a reflection of the broader Australian carbon market maturing over the last few years. The beginning of the business was very much built off the back of those CACs. As that policy changed over time, allowing for the partial exiting of those CACs, obviously there's been a lot more focus on the secondary market now.
We've seen a lot of trading houses, banks and other financial institutions coming into the market, and with that you get a more mature financial market. So in response to that, we've been building out our trading capacity as well as our broader commercial team over the past few years. We take a portfolio approach and we have a large inventory flow to assist with that growing demand, but there are times when we go out to the secondary market and source units on behalf of clients.
You recently partnered with trading and risk management firm Ion Commodities to implement their Carbon Zero tool. How does that translate into your trading capabilities?
We see Ion's solution as a really effective trading tool and portfolio management system. It reflects our readiness to operate at a larger scale. By providing those tools, it allows us to focus on the strategic goals of the business, especially from a commercial perspective. It is very much a tool for reporting purposes and the automation capabilities of the system assist with that, but it does have a bit of a flow-on effect in terms of efficiency across the business as well.
Going to the market, in the short term, it seems to be all about the upcoming federal elections. Do you expect to see much price volatility within the next few weeks?
Yes. As we approach the Australian federal election, we would expect there to be a degree of uncertainty, considering the difference in the two major party outcomes in terms of their take on the carbon market. We would see it as positive in either instance, but I think there is still a degree of uncertainty that should lead to perhaps a degree of illiquidity in the market.
The market has been also weighed down by a strong issuance of safeguard mechanism credits (SMCs). Were you surprised with that high volume when it was first disclosed by the Climate Change Authority late last year?
I think it was the general market consensus that the number was higher than initially forecast, and [ACCU] market prices definitely reflected that in the following weeks and months after those numbers were disclosed. Once the final numbers were released, I think the market had generally already priced that in by that point.
Has that changed your internal outlook for when the ACCU market might see an expected shift from oversupply to undersupply?
I wouldn't say our internal view has changed all that much. If the majority of that volume is now weighted towards the early years of the safeguard mechanism, policies might reflect that going forward.
Now we would probably see ACCU supply as a potential restriction on the market in the short to medium term. Obviously, there's speculation around certain methods in the ACCU market, where higher forecasts were expected over the following next few years and that's now no longer the case. So probably more around supply than demand in terms of our shifted internal views, and this is more from a trading and market perspective as opposed to our actual projects being affected.
So it's more on the supply side than demand, even with the high SMC issuances?
Well, obviously the market has reacted to those media releases by the regulator around SMCs. So you know that's already happened — you can't really argue that now. Will there be further policy changes around the safeguard mechanism to account for that? That's a bit of an unknown, but it's definitely potential in the following years.
And when you talk about supply constraints, is it mostly the delays with the development of the integrated farm and land management methodology, and potentially lower issuances from a reformed landfill gas method?
Those are good examples of general delays in certain methods and the creation of new methods. So yes, our expectation is that this could be a big driver on ACCU prices in the next few years.
