'Huge demand' ahead of carbon exchange: Australia’s CER

Demand for Australian carbon credits and renewable energy certificates is expected to continue increasing rapidly over the coming years, including voluntary markets, officials at the country's Clean Energy Regulator (CER) said today as they unveiled details about the planned Australian Carbon Exchange.

Cancellations of Australian Carbon Credit Units (ACCUs) are estimated to have reached around 1mn in 2023 in the voluntary market, a new high and up from approximately 855,000 in 2022, while those for large-scale generation certificates (LGCs) rose to an estimated 4.9mn last year from 3.4mn the previous year, CER's general manager Jane Wardlaw said during a webinar organised by the Australia-based industry group Carbon Market Institute.

While most of the demand for both products comes from compliance obligations under Australia's Renewable Energy Target and Emission Reduction Fund, including the revamped Safeguard Mechanism, companies can also make cancellations against voluntary certification programmes such as the federal government-backed Climate Active or under organisational emissions or energy targets.

The CER is expecting "huge demand" in the voluntary market stemming from Australia's planned stricter mandatory emissions reporting, especially for LGCs, executive general manager Mark Williamson said on 23 February.

Demand for ACCUs in the compliance market has been already increasing on the back of new safeguard obligations starting from the July 2023-June 2024 financial year, Wardlaw said.

The regulator has been working closely with the Australian Securities Exchange (ASX) and technology solutions provider Trovio Group on its planned Australian Carbon Exchange. Trovio as a first step is developing a new registry for the Australian National Registry of Emissions Units, which is expected to come on line in the second half of 2024, with the exchange itself set to be launched between the end of 2024 and early 2025.

"We think it's time to move to an exchange-based market where participants can trade anonymously," CER chair David Parker said, noting the buying side of the market has become much more diversified in recent years.

"That's not intended to lock out the over-the-counter [OTC] arrangements," Parker said, adding the regulator hopes OTC trades will be cleared on the exchange.

Companies that operate existing trading platforms will be able to connect their systems to the new registry. But the CER will require them to "release some data transparency" such as volumes and prices, Wardlaw said.

New options

The registry and exchange will incorporate other existing certificates like LGCs and small-scale technology certificates, as well as new ones such as the proposed guarantees of origin for hydrogen and renewable electricity. It will also include the new Safeguard Mechanism credit units (SMCs), which will be issued by the government to facilities that reduce their emissions below their baselines. The CER plans to publish information about which facilities are issued SMCs.

While the exchange works with the CER on the new spot exchange, ASX's senior manager of issuer services Karen Webb said it is developing its own separate carbon futures contracts, which it is planning to launch in July 2024. The physically settled contracts will consist of ACCUs, LGCs and New Zealand units, for delivery up to five years ahead.

By Juan Weik