Viridios Capital

Australia finally has a carbon price the world will value
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For over a decade implementing a carbon price in Australia has been a political graveyard which has buried Prime Ministers and governments. Amid a backdrop of extreme bushfires and floods, it’s great to get to the point where Australia finally has what appears to be a comprehensive policy on climate change that will drive meaningful emissions reduction. 

Following the announcement of the Chubb and the Safeguard Mechanism Reviews last week, we’re well on the way to rebuilding confidence in Australia’s carbon market. Knowing that Australian Carbon Credit Unit (ACCU) offsets are fit for purpose and credits used under the Safeguard Mechanism will represent 1 tonne of additional and permanent emission reduction, avoidance or sequestration, sends a strong policy signal that will drive an appropriate and effective price signal. 

Through Viridios’ work in pricing, valuing and delivering carbon projects in the international voluntary carbon market, we know that quality credits which deliver high value projects with clear measurable carbon reduction outcomes and meaningful co-benefits aligning with the UN’s Sustainable Development Goals are in high demand. 

These projects meet rigorous methodologies administered by international standards bodies such as Verra and Gold Standard, these high quality credits channel climate finance to scale up future decarbonisation technologies. They also halt climate disaster by incentivising nature based projects that engage local communities and protect habitats of endangered species. 

By demonstrating real carbon reduction outcomes, improvements in biodiversity and support for local communities in the form of healthcare, education, employment and empowerment, these credits deservedly trade at a price premium. 

With the ACCU scheme’s integrity reaffirmed and new transparency measures set to be introduced, the market will be able to function with a greater degree of confidence. So much so that the Government has capped prices at $75 per tonne for the next financial year for 215 largest emitting facilities through the Safeguard Mechanism. Indexed at annual CPI plus 2% (to be reviewed in FY27) the price can be expected to reach +$100 by 2030.

In effect, the ACCU price will become the effective floor price with emitters likely to buy under $75 if the Government’s new Safeguard Mechanism Credits (SMCs) are not available through emissions reductions from other participants at a lower price. Assuming the Safeguard reforms are implemented, SMCs will be generated when the large emitters produce CO2 below their baselines.

Although unclear to the wider community, Australia currently has a broad array of carbon prices ranging from NSW energy savings certificates ($30), generic ACCUs ($34), large scale renewable generation certificates ($53) to Victorian Energy Efficiency Certificates ($68).  

We also have prices for Climate Active international credits for companies that want the carbon neutral tag, prices for these credits vary from $2 per tonne for renewable energy generated carbon offsets to +$200 per tonne for Biochar carbon removal offsets.  

With the Government soon to impose declining emissions baselines on our largest emitters, in order for Australia to meet its 2030 targets, it’s our view that industry will benefit from being able to access high quality international carbon credits as an alternative source. Over time, price will dictate the scale of new project investment required to meet the projected demand growth.

However, bringing new projects to market also takes considerable time, often measured in years. Given this lag, accessing international credits in the future could well prove critical if we are to reach the laudable and ambitious targets under the Safeguard Mechanism requirements. 

Beyond their compliance requirements, many Australian companies are already actively investing in the international voluntary carbon market in a bid to meet their own net-zero commitments. It is clear that as industry continues its transition and works to meet the tighter Safeguard Mechanism requirements and their own emissions targets, high quality ACCU, Safeguard Mechanism Credits and international carbon offsets will play a key supporting role. 

As a result, there will be greater demand by companies for international carbon credits to complement ACCUs and Safeguard Mechanism Credits in the Australian carbon market. Although they are not proposed to be part of the initial reforms, the Government has considered the possibility of allowing access to high integrity international offsets in the future. 

Given climate change is an international challenge, as domestic policy certainty grows, we believe the Australian market could benefit greatly from drawing on the knowledge, expertise, methodologies and pricing of carbon credits in international markets.  

Eddie Listorti is CEO Viridios Group an Australian-based global leader in project origination, pricing analytics, trading and asset management of high quality carbon offsets on the international voluntary carbon market.