Australia’s Safeguard Mechanism is in full swing, mandating an ambitious annual emissions reduction of 4.9% for the nation’s largest industrial facilities until 2030. With an anticipated 10 million tons of compliance demand in the first period alone, companies under the scheme are facing a rapidly changing landscape for Australian Carbon Credit Units (ACCUs). The urgency for businesses to secure ACCUs and develop proactive compliance strategies cannot be overstated.
Why ACCU Prices Are Set to Rise
The ACCU market’s trajectory is shaped by two dominant forces: supply uncertainty and skyrocketing demand. Here’s why prices are poised to climb in the coming years:
- Tightening Supply Due to Delayed Methodologies
The development of new carbon credit project methodologies is lagging behind, with a significant percentage yet to be written or released. According to the Q3 NGERS Market Update, 61% of the 41.3 million ACCUs currently held are concentrated in Safeguard accounts, leaving little room for new entrants. - Rising Demand from Compliance Entities
The first compliance period is already creating unprecedented demand. With the first major deadline approaching on March 31, 2025, companies are scrambling to procure ACCUs. ANZ Bank ACCU prices to increase by 75% to AUD 70 per ton by 2025, reflecting the ramp-up in demand and dwindling availability of credits. Current ACCU prices at AUD 36/t levels are 15% below AUD 43/t highs, with a significant amount of market volume entering simultaneously in Q1 2025.
Additionally, voluntary demand for ACCUs, driven by certifications like “Climate Active,” is further straining the market. This dual demand—from compliance and voluntary markets—is pushing prices higher, year after year.
The Financial Risks of Waiting
Delaying ACCU procurement comes with financial and operational consequences for businesses:
- Price Volatility: ACCU prices have shown year-on-year fluctuations of up to ±30% and future spikes are expected as demand outpaces supply.
- Limited Availability: With most spot and forward volumes already contracted by top emitters, developers and speculators, waiting until 2027 or later could leave businesses without access to the credits they need.
- Compliance Penalties: Missing deadlines or failing to meet reduction targets can result in hefty penalties, including a $275/t penalty fee for non-compliance as well as reputational damage.
Lessons from Global Markets
Companies under Australia’s Safeguard Mechanism can draw valuable insights from established compliance markets like the EU Emissions Trading Scheme (ETS). In Europe, early movers who secured their compliance credits ahead of deadlines managed to hedge against price surges and protect their financial stability. Similarly, Australian companies can benefit from proactive procurement and risk management strategies tailored to their specific needs. Similarly, Australian companies can benefit from proactive procurement and risk management strategies tailored to their specific needs.
Proactive Strategies for Safeguard Compliance
To navigate the complexities of the Safeguard Mechanism and the ACCU market, companies should consider adopting the following strategies:
- Lock in ACCU Prices Now through Forward Contracts
Utilize fixed forward pricing to secure ACCUs at today’s rates, mitigating the risk of future price hikes. This approach provides cost certainty and simplifies budget planning for compliance obligations. Delivery can occur at a future date (typically months later), with payment also made after delivery. This flexibility can help alleviate any working capital constraints. - Diversify Procurement Approaches
- Implement floating price structures to maintain flexibility while balancing market risks.
- Gradually lock in prices over time through forward ratable hedging to average out costs and minimize volatility exposure.
- Stay Ahead with Market Intelligence
Partner with experts to access real-time updates on policy developments, supply trends, and price forecasts. For example, Reputex reports anticipate significant supply constraints by 2027, emphasizing the importance of early planning. - Invest in Facility-Level Abatement
While procuring ACCUs is essential, exploring low-hanging fruit for emissions reductions within your operations can complement your compliance strategy and reduce overall costs.
Upcoming Deadline: March 31, 2025
Time is of the essence. Compliance entities must surrender ACCUs by March 31 annually, with the 2025 deadline looming large. Waiting until the last minute not only limits your options but also increases your exposure to surging prices and market illiquidity.
Take Action Today
The Safeguard Mechanism represents both a challenge and an opportunity for Australian companies. By acting now, you can secure ACCUs, stabilize your compliance costs and position your business for long-term success in a low-carbon economy. Don’t wait for prices to escalate or supply to dry up—proactive planning is your best defense against market uncertainty.
Contact STRIVE by STX today to explore tailored solutions for your Safeguard Mechanism obligations and start your journey toward compliance and sustainability.
