Changes to Australia's carbon market may unlock millions of units, but participants say the "arbitrary" move could damage investor and community confidence in the emissions reduction tool.
Energy and Emissions Reduction Minister Angus Taylor on Friday moved to allow projects backed by the Emissions Reduction Fund (ERF) to pay a fee to exit fixed contracts early.
Those opting in to the changes could sell their Australian carbon credit units (ACCUs) on the private market for a higher price.
The price of units in the spot market has more than tripled from $17 at the start of 2021 to $60 this year.
"Australia's carbon market is highly dynamic," Clean Energy Regulator chair David Parker said.
Critics say the market is immature and needs money spent on developing new methods that would qualify as emissions reduction projects under the fund.
But Mr Parker says the changes boost carbon credit supply to the private market at a time of increasing demand.
The market spans carbon project developers and investors, farming and forestry, banks, insurers, Indigenous corporations, and heavy polluting industries that use offsets are part of decarbonisation plans.
As a result of these changes, the ERF is expected to deliver significantly more than the 213 million tonnes it is currently projected to contribute towards meeting Australia's 2030 Paris Agreement target, the regulator said.
The industry's independent Carbon Market Institute estimated the government would no longer have to pay for $1 billion in ACCUs under fixed contracts inked between 2015 and 2020, when units were valued at around $12 to $15 each.
Institute head John Connor said the federal government should have linked the changes to strengthened corporate investment requirements and responsibilities, and bigger national emission reduction commitments.
"The exit payments should also be immediately re-invested into the ERF or ACCU method development to facilitate further expansion of the market," Mr Connor said.
Under the fund, there are 38 eligible activities that reduce or avoid emissions, known as methods, across agriculture, industrial, land, mining, transport and waste sectors.
The regulator said any committed funding released back to it will be available to support new projects.
The institute estimated the changes could deliver up to 100 million ACCUs at a value of up to $2.4 billion to corporate or other private buyers over the next decade.
Mr Connor called for "proper public consultation" on any further changes and a commitment to Australia reducing overall emissions by 50 per cent by 2030, supported by a strengthened Safeguard Mechanism.
The official 2030 emissions reduction target is 26-28 per cent below 2005 pollution levels, which Mr Taylor expects will be exceeded.
The national Safeguard Mechanism requires the biggest polluters to keep net emissions below a baseline, but critics say it is too lenient and needs more data and compliance checks.
Australian Associated Press
Sign up for our newsletter to stay up to date.