HIR ACCUs last assessed higher March 20, Generics May 12, 2023
Credits being offered by sellers for higher amid elevated price levels
Convergence led by compliance buyers viewing all credits as equal
The Platts assessment for Human-Induced Regeneration Australian Carbon Credit Unit prices hit a near seven-month high Oct. 17, while Generic ACCUs hit an over 17-month high on stronger demand as the more liquid segment of the market encompassing Generic, HIR and Generic without avoided deforestation ACCUs showed signs of converging.
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Platts, part of S&P Global Commodity Insights, assessed Generic ACCUs at A$37.45/mtCO2e ($25.02/mtCO2e), and HIR ACCUs at A$37.55/mtCO2e Oct.17, both higher by 65 Australian cents/mtCO2e on the day. Generics were last assessed higher at A$37.60/mtCO2e on May 12, 2023, while HIRs were last assessed higher at A$37.90/mtCO2e on March 20.
“I just think it’s an increase in market participation. There is no fundamental reason to drive this that I can see,” an ACCU trader said.
A second ACCU trader said prices are likely being driven up by sellers who are trying to offer volumes for higher amid the already elevated levels in the market.
A Sydney-based carbon broker said, “It really depends on the timing of the trades. I think there is still a small premium for different methodologies, but they have definitely compressed in the past week or so.”
Generic ACCUs are generated by avoided emissions-based projects, such as landfill gas and avoided deforestation, while HIR ACCUs are generated by projects that store carbon by regenerating permanent native forests through alternative land management practices.
New projects can no longer be registered under the HIR method after it expired on Oct. 1, 2023, though existing projects that have been registered will not be affected and can still issue credits.
Liquid segment convergence
More and more market participants have said that there should not be a significant, if any, distinction between Generic, HIR and No AD ACCUs and that this segment of the market is likely to converge eventually.
“The spread will diminish in the long run, especially with the new ACCU methodology coming along,” the second ACCU trader said.
The Integrated Farm and Land Management method is a proposed methodology, combining the activities of several existing soil and vegetation sequestration methods, as well as the expired HIR method into a singular method, that is currently in the works. It was slated for 2024 but has tentatively been delayed amid re-assessments.
“I am all for that [prices converging] if we can make it happen, but clients’ subjective tastes and preferences will always attract a premium,” a Sydney-based carbon broker said.
That said, the broker added that buyers have no qualms about paying a slight premium for certain credits that align better with their corporate image, beliefs, ESG policies and the like.
However, some sources went so far as to say that only voluntary buyers should concern themselves with diversifying their portfolios by buying up “premium” credits, whereas compliance participants, or Safeguard entities, should focus purely on meeting their baselines by buying the cheapest credits available.
Still, each entity makes their own subjective decisions on how they view the market and the decisions they take, the broker said.
A project developer said, “Unless someone comes out with another way of using tech to prove integrity which could see some differentiation, most compliance buyers see all credits as equal.”