ACCU Market Monthly Report - November 2023

ACCU market overview for November '23

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ACCU price

• The Generic spot ACCU price crept up slightly in November. Prices opened at $31.00, a $0.75 rise from October's last trade and closed at $31.50, representing a 1.61% increase across the month.
  
  The lowest level dealt was on 14th November, with a transaction at $30.40 in 35k. Prices peaked on 29th November, reaching $32.25 in 5k for a Generic spot ‘no avoided deforestation’ (No AD) parcel.

• Similarly, the price of Human-Induced Regeneration (HIR) ACCUs displayed little volatility, climbing by 2.94% over the course of November from $34.00 to $35.00. The height was reached on 17th November, with a $35.50 print in 10k.
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• The HIR/Generic spot ACCU spread held firm this month, with the premium of HIR over Generics holding at circa $3.00 steadfastly throughout November. A HIR/Generic (No AD) Swap traded on 28th November at $3.60 in 20k.
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• In the forward market, a total of 175k ACCUs were reported, across three trades. Two Generic April 24 ACCUs printed on the 1st November; one parcel of 25k and another parcel of 125k, both agreed at $31.35 thereby representing a 7.3% cost of carry.
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  The last forward trade of the month was on 15th November, a HIR December 2023 ACCU which was agreed at $35.00 in 25k with a 17.6% cost of carry.

• While there is vibrant interest in a range of other methodologies (see below for more information) this has not translated to significant transactions this month.
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ACCU volumes traded

• The secondary market saw a total traded volume of 2.16 million units, a significant increase of over 182% from October’s volume of 1,185,298 units; the highest reported trading volume since January 2023.
• Generic ACCUs contributed to 40% of the market, with a total of 828k of the reported volume, 150k of which were forwards.
• The preference towards ACCUs with the no avoided deforestation stipulation continued, with No AD ACCUs trading in a total of 720k in November, representing 33% of the market.
• HIR ACCUs’ reported volume was 592k, 27% of the market. One of which was a 25k forward and four of these trades were for Project Specific HIR ACCUs, amounting to 70k.
• Trading volume peaked on the 8th November, with 365k transacting on the reported market, including a 200k Generic Spot ACCU deal at $31.00, as well as a 75k HIR Spot ACCU trade at $34.00.

ACCU market sentiment
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• A rise in demand from compliance buyers is one of the causes of the growth in volumes traded in the ACCU market recently. However, due to the use of third parties to fulfill this demand, it has not been clear what proportion of the market originated from this kind of interest.
  
  Nonetheless, the news alone of increased compliance activity has appeared to further motivate participants to engage and propel trading volumes.  
  
  Despite this, prices this month have continued to trade largely sideways, consistent with the trading pattern over the past 3 months, as strong issuance volumes coupled with the growing surplus have kept a lid on prices.

• A large volume of ACCUs have traded bilaterally in November, many of which are re-purchase agreements (repos), potentially from natural sellers/aggregators who have volumes on hand (as is evident in the surplus – discussed further below) but are reluctant to sell at current levels, in the hopes that prices will move higher in time as Safeguard buying ramps up.
  
  So, by utilizing repos they can free up operating cash flows, while retaining exposure to future market movements (which they hope will be towards the upside).  
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• There has been notable stratification in the market largely driven by demand for projects that are perceived as being good quality and high integrity, as well as the additional cultural and environmental outcomes offered by these units. Environmental Planting and Savanna Burning with Indigenous co-benefits units being prime examples of this.
  
  The market has observed a strong number of bids and offers across a variety of methodologies but the liquidity outside of the Generic, HIR and No AD ACCUs is sparse.
  
  The lack of trades across the less liquid methodologies has contributed to an opacity within the market and is therefore adding to a disparity between last traded levels as opposed to the actual premium that buyers are willing to pay for these methodologies over the Generic price, being reflected in wide bid/offer spreads.
  
  Therefore, although voluntary buyers do continue to look for additional benefits and unique projects, traded volumes remain small.

• Spot Savanna Burning credits (without Indigenous co-benefits) were marked at $35.00 at the end of November, flat to the HIR price in comparison to their end of September settlement of $40 (a $5.75 premium on HIRs at the time).
  
  Environmental Plantings ACCUs have continued to yield strong pricing interest across both spot and forward structures. Sustained interest in 3 to 5 year forward structures, with variable pricing mechanisms have been in demand. At the end of November, spot pricing for Environmental Plantings ACCUs was marked at $54.50, moving up to $63.35 for CY 2025 and to $80.35 for CY 2030.

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ACCU issuance & project registration
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• Over 1.7 million ACCUs were issued in November from 96 projects, down by 12% in comparison to October’s issuance volumes of 225k ACCUs, bringing the total of units issued under the ACCU Scheme to 138 million.
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• ACCU issuance totals were composed of 610k Landfill Gas (LFG) project units (36%), 420k Avoided Deforestation units (25%), 400k HIR units (24%) and 200k Savanna Burning units (11%). Although LFG issuances remained relatively unchanged, Avoided Deforestation issuances grew by 200% in comparison to October’s 140k AD amount. Meanwhile, HIR’s issuances were down 33% in comparison to last month’s figure of 600k.
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• In the first week of November, 202k credits were issued, 58k of which were to 6 projects owned by Terra Carbon. In the final week of Nov, 710k ACCUs were issued over 30 projects, a significant increase from the week prior that saw 141,500 units being issued.
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• LMS Energy Pty Ltd received the largest number of ACCUs issued across the month, with 524,209 units. Of the 610k LFG units issued over the month, 520k were against projects from LMS.
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• The second largest issuance volumes was to Terra Carbon Pty Limited Total (524,209 units) and then AAK PUUL NGANTAM LTD. and Balkanu Cape York Development Corporation (213084 units).
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• In total, four projects were registered to the Emissions Reduction Fund as of the 19th November, the same number that was registered the previous month. This included a Plantation Forestry based in Tasmania, a Waste Management project in Queensland and two New South Wales projects: one Soil Carbon and the other Environmental Planting. From the start of 2023, 312 have been registered, down 10% in comparison to the 345 projects registered at the same time in 2022.
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• Meanwhile, seven projects were revoked in November: one under the ‘voluntary revocation of declaration of offsets projects – units issued’ section 29 clause and six under the 'voluntary variation of declaration of eligible offsets projects in relation to the project proponent’ section 30 clause of the CFI rule.

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ACCU supply
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ACCU holdings in the Australian National Registry of Emissions Units (ANREU) grew in November to 36 million, over 1.2 million greater than the previous month.

According to the Q323 carbon market update from the Clean Energy Regulator (CER), a record 7 million ACCUs were issued in Q3 and holdings in ANREU increased by 5.9 million.

Safeguard entity holdings increased by 72%, whilst holdings for project proponents rose by 24% in comparison to the previous quarter.

A total of 700k ACCUs were delivered into the cost containment reserve in Q3 2023, amounting to a total of 1.2 million ACCUs held in the reserve by the end of the quarter.

However, the CER have amended their expectations for the 2023 ACCU supply from 18 million down to 17 million, citing increased time necessary to complete HIR gateway audits and lowered LFG project issuance.

Despite the strong issuance volumes and surplus, there are multiple factors that could lead to future ACCU supply falling below expectations. The current surplus may be misleading participants who are relying on the it to secure units, but a significant amount of these units is derived from methodologies whose commercial perception has been eroded.

Avoided Deforestation credits, for example, that have been contracted for future supply may fail to deliver due to potential under-performance, possibly due to  to baseline and additionality concerns that question the method's capacity to deliver new abatement, thereby shaking the notion that there will be an ACCU surplus that participants can rely on.

Other unpredictable factors such as weather patterns could also undermine the expected future ACCU surplus. Environmental Planting, Soil Carbon and Savanna Burning are all likely to experience future supply constraints, as dry weather conditions can hamper predicted storage levels offered by Soil Carbon, similarly good water and climatic conditions are needed to avoid high mortality rates in Environmental Plantings projects.

Future ACCU supply will also rest on the awaited Integrated Farm Management (IFM) methodology, which is expected to serve as a potential replacement for HIR. With the Avoided Deforestation method having been revoked earlier this year for new project registration, and HIR coming to an end, there may be a shortfall before IFM’s issuances come into play. Overall, it seems that despite what the figures show, future delivery failure does appear to be a potential risk in the ACCU market, which could potentially be an eventuality that the market may start to price in.

Overall, it seems that despite what the figures show, future delivery failure does appear to be a potential risk in the ACCU market, which could potentially be an eventuality that the market may start to price in.

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