Cheap Carbon Credits Stall Australia's Decarbonization Push

EY warns stagnant ACCU prices and policy uncertainty risk delaying Australia's industrial decarbonization ahead of critical 2026 review

6 Feb 2026

Australia's carbon credit market is stuck. New analysis from EY's Net Zero Centre projects that Australian Carbon Credit Unit prices will hover around AUD 30 to 35 per tonne until at least 2028, a level too low to unlock the large-scale investment the country needs to meaningfully cut industrial emissions.

That's a problem for a Safeguard Mechanism that now covers roughly 220 large industrial facilities, accounting for about 30 percent of national emissions. Those facilities face baselines declining at 4.9 percent annually through 2030, but EY warns that flat carbon prices aren't motivating companies to commit capital toward technologies like carbon capture. The report urges the scheduled Safeguard Mechanism review to be completed by end of 2026, calling current policy settings a handbrake on investment.

The government's formal consultation paper is expected in July 2026, kicking off a year-long review. The Productivity Commission has already recommended lowering the Safeguard Mechanism's participation threshold from 100,000 to 25,000 tonnes of CO2 equivalent, a change that would substantially expand facility coverage and lift demand for credits. Also from July, the permanent exit window for legacy Carbon Abatement Contracts opens, potentially flooding the secondary market with millions of units and reshaping supply dynamics.

None of this has stopped major infrastructure from advancing. INPEX is targeting operations this year for its Bonaparte CCS project in the Northern Territory, backed by an estimated AUD 1.2 billion investment and federal Major Project Status. The government has also opened a second round of its Carbon Capture Technologies Program, offering grants of up to AUD 10 million for pilot and demonstration projects in hard-to-abate sectors including cement, chemicals, and steel.

EY projects prices could reach around AUD 70 per tonne by 2035, but only if policymakers move decisively. Industry observers say the next few months will effectively determine whether Australia can convert its strong CCUS fundamentals into bankable projects. Without clearer signals from Canberra, the distance between the country's decarbonization ambitions and its on-the-ground progress will keep growing, putting its target of cutting emissions by 62 to 70 percent below 2005 levels by 2035 increasingly out of reach.