ASX rules out listing stratified ACCU futures

The Australian Securities Exchange (ASX) is not considering listing method-specific Australian carbon credit futures contracts as it aims to focus on generic products, ASX's head of commodities, Daniel Sinclair said.

The exchange on 29 July launched annual environmental futures contracts for physically-deliverable Australian Carbon Credit Units (ACCUs), New Zealand emissions units (NZUs), and Australian large-scale renewable generation certificates (LGCs), aiming to provide a transparent and efficient marketplace for environmental commodities.

So far, ACCUs have been the only contracts that traded, with just 16 lots changing hands over the first three weeks of trading for a combined 16,000 units. Each futures contract comprises 1,000 ACCUs, or the equivalent of 1,000 t of carbon dioxide (CO2) avoided or reduced by carbon projects approved by the Clean Energy Regulator (CER).

Australia has witnessed a growing secondary market for ACCUs in recent years, as the country has tightened the safeguard mechanism of the compliance market. More than 100 companies have been actively trading ACCUs, according to the CER. Sinclair described the bilateral and over-the-counter (OTC) market as "very robust" at the Carbon Market Institute (CMI)'s Singapore Carbon Market and Investor Forum on 16 August.

But while liquidity in the secondary spot market is currently split among three main products — generic, generic without the avoid deforestation method (labelled "no AD"), and human-induced regeneration (HIR) ACCUs — the ASX plans to maintain its focus on generic products only.

"What we've seen in many commodity markets around the world is this need to centralise liquidity around the derivative, and then the differentials — whether it's co-benefits, method, premium or discounts — are expressed as a basis or a differential to the underlying future," Sinclair said in a panel discussion. "If we tried to do an HIR future, AD future or [Environmental Plantings] EP future on its own, the market would not work; it would fail as liquidity would be bifurcated."

The so-called generic ACCUs include different carbon credit methods, with most volumes coming under the avoided deforestation and landfill gas methods. The emergence of the "no AD" label in spot trading was a result of the revocation of the avoided deforestation method for new projects in early 2023 due to integrity issues, with existing projects still allowed to receive credits for the remaining of their crediting period. HIR ACCUs have become a popular option for buyers looking to step away from generic products, though premiums for that method tightened significantly early this year following negative academic and press coverage around certain types of HIR projects.

Generic ACCUs have traded between A$34.25-34.50 in August, mostly at tight discounts of A$0.15-0.30 to no AD and A$0.25-0.50 to HIR ACCUs. The HIR premium was around A$3 late last year.

Compliance buying

Sinclair explained that a key difficulty in introducing the new ACCU futures was their need to align with compliance market requirements.

"One of our challenges in launching the new ACCU futures was ensuring they support the compliance market," Sinclair said. "These products need to be deliverable — they need to be able to deliver into the registry and usable for offsetting surrender obligations."

Buyers of generic ACCUs in the secondary market typically only know what methods their supply is coming from upon delivery, when units are transferred between accounts at the CER's Australian National Registry of Emissions Units (ANREU) registry. New products have been introduced in the market to manage risk, including swaps through which buyers and sellers can change volumes — swapping for instance generic and HIR units.

Each of the ASX's carbon futures contracts is listed on an annual basis out to five years with delivery months varying according to compliance surrender deadlines for each scheme in Australia and New Zealand. The final trading day for the 2025 ACCU contract is 4 March 2025, nearly four weeks before the CER's surrender deadline of 31 March 2025 for companies under the safeguard mechanism. Participants with open positions at the time of the contract expiry will be required to transfer or receive ACCUs via the ANREU registry within three business days following the final trading day.

Most of the futures buyers opting for physical delivery are expected to be safeguard facilities, and there is consensus in the market that most of these entities would choose least cost carbon abatement — that is, generic ACCUs. But as all safeguard facilities will need to start disclosing the methods of their surrendered credits, some of them may want to avoid methods like avoided deforestation, participants told Argus on the sidelines of the event. This could support the continuity of the "no AD" premium over generic products, however small the spread has been.

"I think there will be different views in the room about whether avoided deforestation should be delivered into a futures market, but the way we view it is the futures give you the capacity to hedge risk and should align with the CER surrender requirements," Sinclair said.

By Juan Weik