MELBOURNE : Australia on Friday cleared the way for millions of carbon credits to be sold to the private market instead of to the government, allowing developers of carbon abatement projects to potentially earn more for their emissions reductions.
The surprise change in policy immediately hit the carbon market, with the price of Australian Carbon Credit Units (ACCUs) dropping 24per cent on the prospect of a sharp increase in the supply of credits, research firm RepuTex said.
The government is now giving carbon abatement project developers, such as vegetation projects, the option of selling the ACCUs generated by their projects to the private market instead of selling them to Australia's Emissions Reduction Fund.
"This will allow projects to take advantage of higher market prices over time," Emissions Reduction Minister Angus Taylor said in a statement.
Each ACCU is worth 1 tonne of carbon dioxide avoided or stored. On average, the government has been paying vegetation projects A$12 for each ACCU generated, far below prices traded on the private market over the past year.
Project developers will have to pay a fee of about A$12 per ACCU to exit their contracts with the Emissions Reduction Fund.
The new policy could result in up to 6.7 million ACCUs becoming available by June, and up to 112 million by 2030, RepuTex said.
"If new supply is not balanced by a commensurate volume of new demand, as is the case here, downward pressure on prices may be significant," research firm RepuTex said in a note, adding the policy would effectively put a floor price of A$24 a tonne for ACCUs.
ACCU prices on the private market more than tripled to A$58 a tonne over the year to January, driven by soaring demand from companies rushing to offset their carbon emissions to meet net zero targets.
The new policy sparked angry responses from investors now worried about regulatory risk making the market unpredictable.
"It's a very interventionist measure in the market. It negatively impacts investor confidence in the market," said Brad Kerin, general manager of the Carbon Market Institute, an industry group, citing feedback from investors, financiers and project developers.
($1 = 1.3648 Australian dollars)
(Reporting by Sonali Paul; Editing by Sam Holmes)