Australia Carbon Credits

Carbon Markets Driving Fuel Transition

This year could be a turning point for Australia’s biofuels industry, with the country’s reformed safeguard mechanism beginning to trigger demand incentives and the federal government announcing a long-awaited support package in September.

The year started with a significant change in Australia’s compliance carbon market. The July 2023-June 2024 financial year marked the first year since the country’s safeguard mechanism was reformed, triggering a nearly seven-fold increase in carbon unit surrenders. A total 138 facilities out
of 219 covered under the scheme surrendered 7.05mn Australian Carbon Credit Units (ACCUs) and 1.38mn Safeguard Mechanism Credits (SMCs) — or the equivalent of around 8.4mn t of CO2 equivalent (CO2e) — to manage their excess emissions for the 2023-24 financial year, up sharply
from 1.22mn units a year earlier.

Under the reformed mechanism, individual facilities that emit more than 100,000 t/yr CO2e of Scope 1 emissions — direct emissions from their own operations — face declining baselines and need to surrender ACCUs or SMCs if their on-site abatement activities are not enough to keep emissions below thresholds.

The reform has sparked investment in activities to reduce direct emissions across the covered sectors — oil and gas, mining, manufacturing, transport and waste — including cutting higher-emitting fuel use and moving towards lowcarbon alternatives. For example, Australian building materials firm Boral has upgraded the carbon-reduction technology at its Berrima cement plant in New South Wales and plans to use more by-products from steel manufacturing and industrial waste rejections and reduce limestone use.

But most emissions reductions were brought about through lower-cost abatement activities, with the safeguard mechanism not yet incentivising more expensive abatement.

In particular, use of low-carbon liquid fuels (LCLF) is not incentivised at current ACCU prices and safeguard mechanism settings. This could change if the mechanism’s settings are tightened following a scheduled review in 2026-27, coupled with Australia’s recently announced A$1.1bn ($720mn) Cleaner Fuels Program.

Download “The role of ACCUs and renewable fuels in Australia’s decarbonisation” insight paper here » GO.