Skip to content Skip to sidebar Skip to footer

Safeguard Mechanism to drive ACCU demand spike in early 2022

The Australian Government’s Safeguard Mechanism (SGM) places emissions limits – or baselines – on Australia’s largest emitters. Facilities with more than 100,000 tonnes of scope 1 (direct) carbon emissions per annum must keep their emissions below a baseline or purchase Australian Carbon Credit Units (ACCUs) to make up the difference. The SGM currently includes flexible provisions designed to accommodate business growth and continued normal operations, which has allowed most emitters to escape penalty for non-compliance. Despite this, the SGM could drive significant spikes in demand for ACCUs by February 2022. This unforeseen demand (in an increasingly supply-constrained market) could have significant implications for Australia’s still nascent carbon markets. 

The Safeguard Mechanism Multi-Year Monitoring Period

28 Responsible Emitters currently report under a SGM Multi-Year Monitoring Period (MYMP). The intent behind allowing emitters to report under a MYMP is to provide a time buffer for businesses to reduce emissions back below the SGM capture threshold, or transition to an appropriate production or calculated baseline. 

The MYMP lasts for either two or three years. MYMPs that expired on 30 June 2019 only resulted in a cumulative demand of 1,742 ACCUs due to some large emitters dramatically reducing their emissions in 2019. Any exceedance from MYMPs concluding on 30 June 2020 was delayed by one year due to the COVID-19 pandemic, allowing those entities an additional year to manage, or further increase, those emissions. 

Had this delay not occurred, two businesses would likely have collectively exceeded their MYMP allowance by 880,586 ACCUs as at end of June 2020 (See Figure 1). Assuming an ACCU price of $22 on the secondary market, this equates to a cost impost for these two businesses alone of close to $19 million. 

ACCUs Surrendered under the SGM

There are several important outcomes from this situation worth noting. 

1. It means that in FY20, two companies’ combined, and principally one company alone, may have incurred a greater SGM liability than all previously captured SGM entities who weren’t over the threshold due to ACCU production. The design of the SGM is such that this reflects the relative luck of these two companies more than their operating practices. 

2. By extending the expiry of the MYMP to ostensibly reduce the burden on businesses already impacted by COVID-19, there may be a perverse outcome whereby due to increasing ACCU prices on the secondary market, the price of compliance has increased materially. There is also the possibility that the extension has increased the overall SGM exceedance of the MYMP liable emitters by delaying the necessary move to a Transitional or Production-Adjusted Baseline. Something anecdotal evidence suggests is likely. 

3. Finally, by providing the extension, the size of the demand spike for ACCUs resulting from the SGM could have significantly increased. Now, both facilities in an excess emissions position that were on a MYMP set to expire on 30 June 2020, and those set to expire by 30 June 2021, could require ACCUs at around the same time, further exacerbating the recently observed price spike in ACCUs. 

Demand for ACCUs is likely to continue climbing as a direct result of the Safeguard Mechanism

To put this last point in perspective, since Q1 2019, an average of 197,000 ACCUs have been taken from the secondary market and surrendered through the SGM or voluntarily per quarter. As shown in Figure 2 below, the number of ACCUs required to meet the now delayed 2020 MYMP exceedance could alone be more than four times the average quarterly surrender rate otherwise observed. This excludes any ACCUs that will need to be surrendered for MYMPs that expire by 30 June 2021, or SGM emitters without a MYMP, or potential additional excess emissions for 2020 MYMP emitters; suggesting that demand for ACCUs in an illiquid market is likely to continue climbing as a direct result of the SGM. It is noted however that measures could have been taken to significantly reduce emissions against their SGM baseline. 

Quarterly SGM and Voluntary ACCU Surrender

Organisations expecting to exceed their SGM baseline, either through the MYMP or other mechanisms, should consider this dynamic carefully to avoid being caught by the coming ACCU demand peak. So too should ACCU developers, or those seeking carbon neutrality through Climate Active where participants are increasingly seeking the confidence that comes from Australian offsets. 

“Domestic and international funds, private equity firms and asset managers are all investing in carbon projects, banks are establishing commodity carbon and environmental markets, and futures trading is emerging. The quality of Australia’s assurance system is starting to shine. I can see Australia becoming a net exporter of carbon credits and systems.”

John Connor, CEO Carbon Market Institute 

Ndevr Environmental has extensive experience working with organisations to reduce reliance on offsets to meet decarbonisation objectives, though they will remain an important part of the mix. We have also had extensive experience turning industrial-scale decarbonisation opportunities into productive, impactful Emissions Reduction Fund (ERF) projects. If your organisation needs help to strategically manage a growing demand for high-quality ACCUs and the resulting need for deep, structural decarbonisation, reach out to our experts environment@ndevr.com.au | P: +61 8 9278 2540

Business Hours

Mon - Fri : 9am - 5.30pm

Melbourne - HQ

Level 2, 27 – 31 King street, Melbourne, VIC 3000 P: +61 3 7035 1740

Sydney

Commons Central, 20-40 Meagher St, Chippendale, Sydney, NSW 2000 P: +61 3 7035 1740

Brisbane

Level 6, 200 Adelaide Street, Brisbane, Qld, 4000 P: +61 3 7035 1740

Perth

Level 25, South 32 Building, 108 St Georges Terrace, Perth, WA 6000 P: +61 8 6557 8571

Ndevr Environmental Pty Ltd© 2021. All Rights Reserved. Founded 2010. Privacy Policy.
B-Corp-Climate-Active-logo

MAKE AN ENQUIRY

Please complete the form below and we’ll be in contact with you shortly.





    ATIYAH

    CARBON NEUTRAL PRODUCT

    ​AWESOME STREETFOOD, ZERO CARBON – that’s Atiyah. With its launch in 2020, Atiyah became Australia’s first 100% renewable-run street food zero-carbon kitchen certified under Climate Active. Atiyah sets operational carbon efficiency benchmarks and raises awareness about the global warming impact of food choices. They even disclosed the footprint of every item on their menu to empower their customers’ low-carbon lifestyle. We assist ATIYAH with their carbon neutrality certification.

    ORIGIN

    CARBON NEUTRAL ORGANISATION & PRODUCT

    Responsible business is at the heart of what Intrepid does. Intrepid has been a pioneer in measuring and reporting carbon emissions since 2010. When it joined the Climate Active family in 2018, it became the largest global provider of carbon neutral certified travel adventures and the first company to voluntarily include all global operations in its certification.

    NEXTDC

    CARBON NEUTRAL ORGANISATION & PRODUCT NEXTDC are one of Australia‘s most trusted providers of data centre solutions. Since 2018 we’ve been assisting them with their Greenhouse Gas (GHG) accounting and in March 2021, the company broke ground with the launch of NEXTneutral, an innovative Climate Active-compliant colocation opt-in program for their customers. Learn more.

    GOODMAN

    COMMERCIAL & INDUSTRIAL PROPERTY
    Goodman Group is an ASX20 global property expert in logistics and business space. It owns, develops and manages industrial property in 17 countries. We provide strategic advisory on Goodman’s operational GHG inventory and trajectory, the GHG intensity of its investment portfolio, net zero pathway and carbon neutral certification, as well as the renewable energy delivery strategy.

    ISPT

    PROPERTY FUND MANAGEMENT
    ISPT is one of Australia’s largest unlisted property fund managers, with over $11.9 billion of funds under management. We assist ISPT with its net zero pathway, land-based offset strategy as well as maintaining its carbon neutral certification. When ISPT joined the Climate Active network, it pioneered many concepts. It became the first participant under Climate Active to voluntarily include base building operations on all its owned and operated properties into its organisational certification and, as an industry first, procured 100% Australian Carbon Credit Offset Units (ACCUs).

    BHP

    METALS & MINING
    BHP is an ASX listed, world-leading resources company and are among the world’s top producers of major commodities, including iron ore, metallurgical coal and copper. They also have substantial interests in oil, gas and energy coal. We assist BHP comply with energy and greenhouse gas legislation and advise facilities on matters related to energy use and production emissions.

    Intrepid

    TRAVEL
    Intrepid Travel is the largest small group adventure travel company in the world. Responsible business is at the heart of what Intrepid does. We assist Intrepid with their Human Rights reporting obligations as well as many aspects of its GHG accounting and reporting. This includes its Science-based target (SBT), making them the first tour operator with approved SBT. When Intrepid joined the Climate Active family in 2018, it became the largest global provider of carbon neutral certified travel adventures and the first company to voluntarily include all global operations in its certification.

    LION

    BEVERAGES
    Lion is a global beverage company with a portfolio of brands in beer, cider, wine, spirits, seltzers, and non-alcoholic drinks. Lion has four large and four small Australian breweries, and its brands include XXXX, GOLD, Tooheys New, and Little Creatures. We assisted Lion to become Australia’s first large-scale brewer to be certified as carbon neutral under Climate Active in 2020.

    QANTAS Airline

    AIRLINE
    Founded in the Queensland outback in 1920, Qantas has grown to be Australia’s largest domestic and international airline. We have worked with Qantas since 2016 on a variety of emissions reduction projects.

    ORICA

    METALS & MINING
    Orica is the world’s largest provider of commercial explosives and innovative blasting systems to the mining, quarrying, oil and gas and construction markets, a leading supplier of sodium cyanide for gold extraction, and a specialist provider of ground support services in mining and tunnelling. We assist Orica with their regulatory reporting such as NGERs and also carbon abatement projects.

    Fulton Hogan

    CONSTRUCTION
    Fulton Hogan has more than 80 years experience in the transport, water, energy, mining, civil construction and land development infrastructure in New Zealand, Australia and the South Pacific.
    We assist Fulton Hogan comply with NGER and NPI legislation for their extensive national operations. We work Fulton’s team to streamline reporting procedures to avoid duplicating data handling and transparently demonstrate data flows and aggregations.

    TOYOTA AUSTRALIA

    AUTOMOTIVE
    Toyota Australia was founded in 1963 and is one of Australia’s leading automotive companies. We have worked with Toyota since 2018 on many aspects of its GHG accounting, target setting, reduction initiatives, and reporting. We continue to inform strategic decisions around the contribution of the Australian business to the realisation of Toyota’s global Environmental Challenge 2050.

    H&H Group / Swisse Wellness

    CONSUMER GOODS
    H&H Group is a global health and nutrition company listed on the Hong Kong Stock Exchange. Consumer brands include Biostime, Solid Gold Pet, Dodie, Good Goût, Aurelia Probiotic Skincare, CBII, and Swisse Wellness, a vitamin, supplement, and skincare brand, born in Australia in 1969. We have been working with Swisse and the group on many aspects of its GHG accounting and reporting, including the ongoing management of its Climate Active certification.

    AGL ENERGY

    ENERGY
    AGL is one of Australia’s leading energy companies offering electricity, gas, solar and renewable energy services, plus internet and mobile plans. We have assisted AGL for over five years on a variety of activities including audit and assurance projects.

    VIVA ENERGY

    ENERGY
    Viva Energy is a leading energy company which supplies about a quarter of Australia’s fuel requirements. Viva Energy make, import, blend and deliver fuels, lubricants, solvents and bitumen through extensive national and international supply chains. We assist Viva Energy with a range of energy and greenhouse gas related projects. These include annual NGER reporting, Safeguard baseline setting, advice on Emission Reduction Fund opportunities and emission trajectories.