Pulling the rug out from 'Down Under'

What can investors learn from the collapse of the Australian carbon market?

Carbon trading can enjoy a boom even when decarbonisation targets are far from ambitious.

That’s what happened in Australia where the price of carbon allowances rose 3-fold during the latter half of 2021. From less than $20 per tonne in mid-2021 the price of carbon allowances increased to $57.50 per tonne in early January.

Unlike much more ambitious targets elsewhere in the world, Australia only plans to cut emissions by 26-28% compared with 2005 levels by 2030, much slower than the UK, the EU or the US. It’s government also reluctantly pledged to achieve net zero by 2050, but not at the expense of the country’s fossil fuel sector while also offering precious few details about how the target will be met. Australia has long dragged its heels on action to decarbonise its economy.

Perhaps that should have been a warning sign for carbon investors as to what came next. But first a quick primer as to how the carbon market works in Australia.