In focus: Australia’s CAC exit fuels uncertainties

Australia's long-awaited permanent exit arrangements for fixed delivery carbon abatement contracts (CACs) have sparked uncertainties that are expected to linger in the market throughout at least the first half of 2026, making it harder to forecast fundamentals and prices, market participants have warned.

Companies and landholders with active fixed delivery contracts with the federal government — spanning nearly 300 CACs with a combined remaining volume of around 84mn Australian carbon credit units (ACCUs) — will have the option to exit their agreements if they meet certain conditions, the Clean Energy Regulator (CER) announced earlier this month.

They will need to deliver at least 25pc of the outstanding volume of ACCUs under their contracts as of 1 January 2025 to be eligible for a 60pc discount on their exit payment, known as buyer's market damages. This would then allow them to sell the remaining 75pc contracted volume elsewhere, potentially unlocking up to more than 60mn ACCUs into the secondary market within the next five years.

More than 80pc of the outstanding volumes are in fixed delivery CACs held by just three carbon project developers — GreenCollar, Agriprove and Corporate Carbon Group — according to the latest CER's CAC register data (see table). Part of the remaining contracts come from dozens of landholders that work with major service providers including Climate Friendly and Shell Australia's subsidiary Select Carbon.

Contract holders have been assessing their CACs, but some have already identified that a few "contractual terms are quite onerous and may not be worth the financial incentive" of the 60pc exit fee discount, a source at a developer told Argus.

And in the case of service providers like Climate Friendly, decisions on whether to participate in the voluntary exit arrangement will be made by each CAC holder, co-chief executive Josh Harris said.

"Approximately one-quarter of the portfolio of more than 180 land sector projects that we provide services to have fixed delivery CACs, with around 3.2mn ACCUs remaining to be delivered under the original delivery volumes," Harris said.

"As agent, Climate Friendly will provide information on the opportunity, and it will be our project partner's choice whether to exit their CAC or not," he added.

Clarity not expected until later in 2026

More clarity around the total estimated volumes and the timing of their release is not expected until at least the start of the second half of 2026, after the CER starts to disclose information about the uptake of the voluntary exit arrangements.

Contract holders will need to submit an expression of interest by 30 June 2026, with permanent exit arrangements starting from 1 July 2026. They will need to deliver the minimum 25pc volume before they can exit all remaining delivery milestones and receive the 60pc exit fee discount. All obligations will need to be fulfilled by 31 December 2030 if they opt in — including contract holders with CACs currently expiring beyond that date, such as in 2031 or 2032, the CER told Argus on 12 December.

Suppliers would retain the flexibility to continue delivering more ACCUs than the 25pc minimum and be paid contract prices averaging around A$12/t CO2 equivalent (CO2e) if they wished so. That would be unlikely to happen, unless spot prices in the secondary market fell sharply in the future, market participants said.

Argus' daily price assessments for generic ACCUs averaged A$35.71/t CO2e so far this year, ranging between A$32.50-38.65/t CO2e. Prices ended this week at A$36.25/t CO2e.

The results of the exit arrangements will be published monthly, alongside updates to the CAC register, according to the CER.

Around 13mn ACCUs were released from fixed delivery CACs across four pilot exit windows in March 2022-December 2024 (see table).

Mixed views

The permanent CAC exit policy gives land managers "greater certainty around any CAC obligations and offers a clear incentive for early compliance through discounted exit fees", Harris told Argus.

The CER said it designed the permanent arrangement with "flexibility and clarity" to encourage widespread uptake and maximise the delivery of outstanding contracts.

But while sources at developers said at first look it would be financially beneficial for developers to opt in, several months will be required to assess the detail of the proposal.

"It's quite complicated — even the regulator struggled to explain it to the market," a source at a developer said.

The CER carried out a closed webinar for CAC holders and service providers right after the announcement, but several participants who attended said many were left with more questions than answers, with specific details yet to be clarified.

And several active participants in the ACCU market complained that they were left out of the webinar, having received no invitation.

"Market-moving information may be shared in such webinars, so the best practice would be inviting all participants," a trader said.

The new exit arrangements might also put pressure on developers with large outstanding balances, making it harder for them to deliver projects into the market, according to market participants.

A particularly challenging case is Agriprove, which has only five CACs awarded in auctions in 2016 for a delivery period of 10 years, but for a combined committed volume of 18.18mn ACCUs. The company has delivered just 3,660 units so far, with another 3,905 units having been released through previous exit windows, which means its outstanding balance is still 18.17mn units.

Agriprove focuses on soil carbon projects and currently has 616 registered ACCU projects — the largest for a single developer across the scheme, making nearly 25pc of the over 2,400 of currently valid projects. But those projects have received a combined 123,945 ACCUs, as soil carbon is a relatively recent method that is yet to lead to higher issuances.

The company did not reply to queries sent by Argus.

Other cases

GreenCollar and Corporate Carbon Group, on the other hand, are among the developers with the biggest ACCU issuances historically, having delivered significant volumes to the CER through their CACs.

Corporate Carbon had been issued around 15mn ACCUs as of earlier this year, with forecast future issuances of around 3mn ACCUs/yr from a mix of owned projects and offtake agreements with other developers and partners in the industry, head of carbon trading Angus Robertson told Argus in April. The company declined to comment on the new CAC exit arrangements.

GreenCollar claims to be the largest nature-based ACCU developer, with a market share of over 40pc. Subsidiaries Terra Carbon and Devine Agribusiness Carbon have received 26.8mn and 2.11mn ACCUs so far, respectively, out of a total of 176.6mn, with the combined 28.9mn volume the highest among all developers, just above 27.8mn ACCUs from bioenergy company LMS Energy, which focuses on waste management methods.

GreenCollar also declined to comment. But it told Argus late last year that it expected its deliveries to continue until the end date of the last contract, which is in 2032.

"We have always fulfilled our obligations under CACs and have at times exercised options to pay exit fees, on occasion rescheduling some deliveries," it said back then. Some contract dates were moved because the start dates of some projects were later than originally anticipated, it said.

The company said it never had to purchase ACCUs in the secondary market to fulfil its delivery obligations.

CAC holders that fail to deliver their contracted volumes would need to pay the full buyer's market damages and may face other consequences, according to the CER.