Australian carbon credit prices could reach $220 under 1.5°C scenario
Australian companies covered by the Safeguard Mechanism could face sharply higher carbon-credit costs if the scheme were tightened to align with a 1.5°C global warming pathway, according to modelling by climate consultancy Reputex.
The modelling estimates the price of Australian carbon credit units could reach $220 by the early 2030s under a 1.5°C scenario. That is about 5.5 times the current price, shown at $38.80 in the analysis, and well above the scheme’s current $88 ceiling price.
Under current policies, Reputex forecasts Australian carbon credits at $96 in 2035.
Safeguard Mechanism settings under review
The Safeguard Mechanism requires Australia’s biggest coal, gas, manufacturing and transport companies to reduce their emissions by 4.9 per cent each year. Companies that cannot meet their targets through on-site reductions can purchase carbon credits to help satisfy their obligations.
Energy Minister Chris Bowen has launched a review of the scheme to consider whether changes are needed following the government’s new medium-term target of reducing emissions by 62 per cent from 2005 levels by 2035.
Reputex chief executive Hugh Grossman said its modelling indicates Australia’s current climate-policy framework is tracking towards a 2°C pathway. Moving to a 1.5°C pathway would require annual emissions reductions of about 7.5 per cent and a substantial increase in the carbon-credit price cap.
Grossman said carbon costs could be two to three times higher than under current policy if Australia sought closer alignment with the Paris Agreement.
Business groups warn of investment pressure
The prospect of tighter settings has prompted concern from business groups over the effect of higher compliance costs on investment.
Business Council of Australia chief executive Bran Black warned that excessively tightening the rules could discourage investment in Australia and drive companies offshore. He argued that carbon credits should remain accessible while broader competitiveness issues are addressed.
The government’s review is also considering whether mining companies’ use of carbon credits should be limited to encourage greater investment in on-site emissions-reduction technology. A spokesman for Bowen referred questions about any increase in the price cap to the review process.
The scale of corporate demand is already significant. In the 2024–25 financial year, the top 10 users of carbon credits included Rio Tinto, with 1.2 million units, and Woodside, with 1.1 million. Six coal companies were also among the largest users, including Glencore, Yancoal and Peabody.
The political outlook remains contested. The Coalition and One Nation have both promised to abolish the Safeguard Mechanism if elected, while Opposition Leader Angus Taylor has announced plans to increase Australian gas production and remove net-zero policy constraints on Australian industry.
Reputex’s 1.5°C scenario remains below some international carbon-price projections. Grossman pointed to forecasts from the Network for Greening the Financial System of between $700 and $1,800 a tonne by 2050.
SOURCE ATTRIBUTION:
Based on reporting by The Australian Financial Review.