Australian carbon credits hit record highs of over $55 a tonne earlier this year, but last week the price crashed.
- Carbon credit prices fall more than 30% after federal government policy change
- Landowners, businesses and carbon credit providers can request to withdraw from fixed delivery contracts
- Decision taken in response to an “unsustainable” gap between fixed contracts and open market prices
The carbon credit market plunged more than 30% after the announcement that people will now be able to request to withdraw from their fixed-delivery carbon credit contracts with the federal government and enter the much more lucrative open market.
Josh Harris, co-chief executive of carbon farming project service provider Climate Friendly, said the Commonwealth held nearly two-thirds of the country’s Australian Carbon Credit Units (ACCUs).
The sudden rule change meant that a flood of government carbon credits could now enter the open market, driving prices down overnight.
Why did the government make this decision?
Previously, anyone undertaking carbon credit projects had to sign a fixed contract with the Commonwealth to provide carbon credits for up to 10 years before they could sell on the open market.
More recently, people were able to sign up for an optional delivery contract, where they could sell either to the government or on the open market.
But a widening gap – about $12 per unit of carbon credit – has opened up between the fixed price offered by the government and the open or spot market.
In a statement, a spokesman for the Clean Energy Regulator, the government body charged with accelerating carbon emissions reductions, said the spot market had grown by around 200% in the past year.
“It was clear that some promoters had considered using damages clauses in their contracts to sell their ACCUs at higher prices in the secondary market.
“If this happened, the Commonwealth would be obliged to pursue the recovery of the debt of the liquidated damages clause in the contracts, including by taking legal action.”
He said instead they would offer a “measured” and “orderly” exit arrangement of fixed delivery contracts and rather than a legal procedure, the exit fee will be an administrative procedure.
Decision could impact net zero goal
Mr Harris said the policy change could deter landowners from committing to carbon projects and would make it more difficult to reduce emissions.
Lower prices could also change the equation for companies that decide to offset their emissions by buying carbon credits or investing in reducing their emissions themselves.
Jacqueline McArthur, from Moama in the NSW Riverina region, is part of Regen Farmers Mutual, a group of farmers who have come together to act as a broker for carbon credits and other environmental goods and services.
She said the change in policy destabilized the market.
“They [the federal government] really had to react, which is unfortunate because the big brokers said they would walk away from their contracts.
“The government had to weigh the price of litigation…or have a managed pension.”
Ms McArthur said the focus now needs to be on market design and having a national emissions reduction policy.
“We need to have a policy that ensures there are more market participants in addition to the government.”