The new rules of carbon

How compliance is reshaping Australia’s ACCU market

Danielle de la Cour, Associate Director – Australia, South Pole

The Australian carbon market is undergoing a structural transformation. For years, demand for Australian Carbon Credit Units (ACCUs) was anchored primarily by corporate voluntary commitments and government purchasing under the auction mechanism.

That voluntary foundation remains a vital and highly endorsed component of corporate climate leadership. But the market landscape around it has expanded dramatically, and the numbers now tell a clearer story than sentiment alone.

Driven by legislative reform and evolving corporate strategy, the market is pivoting into a dual-engine model, where voluntary buyers are now joined, and comprehensively outweighed, by mandated compliance obligations. This shift elevates ACCUs into a core financial risk-management asset for Australia’s largest industrial emitters, opening a rare strategic window for institutional investors, natural capital managers, and primary producers alike.

Expanding horizons: from voluntary leadership to statutory baselines

Two regulatory developments have accelerated this structural expansion. First, on 24 July 2026 the Australian Government confirmed it will wind down the Climate Active programme and retire the ‘carbon neutral’ trademark that has underpinned voluntary claims since 2010. Credible voluntary action will increasingly need to be demonstrated through internationally aligned frameworks instead, namely the Science Based Targets initiative (SBTi), the VCMI Claims Code, the Oxford Principles, and ISO standards.

The primary engine now accelerating total market scale is the reformed Safeguard Mechanism (SGM). The scheme currently covers 208 of Australia’s largest industrial facilities, those emitting over 100,000 tonnes of carbon dioxide equivalent annually, and applies a 4.9% annual baseline decline through to FY2030. While an indicative 3.285% annual rate is currently legislated beyond 2030, that figure is explicitly under review, with post-2030 baseline settings to be settled by 1 July 2027. Independent modelling suggests baselines may need to tighten materially to align with Australia’s ambitious 2035 target.

In the meantime, the mechanism is already doing real work. Of the 208 covered facilities in the 2024-25 compliance year, 141 exceeded their baselines by a combined 13.7 million tonnes CO2-e, surrendering 10.8 million ACCUs to manage the shortfall. While Safeguard Mechanism Credits (SMCs) offer a secondary compliance currency, ACCUs remain the dominant tool. Major emitters in hard-to-abate sectors simply cannot generate enough onsite abatement to close the gap alone, making ACCUs an essential compliance bridge.

The scale of the shift is now stark. In the 2024-25 compliance year alone, voluntary cancellations across the whole market fell to under half a million in the first half of 2026. Backed by federal law, compliance demand is no longer a marginal add-on: it is the market.

The looming supply bottleneck

While both compliance and voluntary demand continue to build in Australia and globally, as evidenced in South Pole’s latest Carbon Market Buyers’ Guide, the supply side faces an uncomfortable truth much of the market has yet to price in: a severe structural lead-time lag, and it is not uniform across project types.

Environmental plantings, plantation forestry, and soil carbon remain the predominant land-sector methods for new project registrations, but all carry the multi-year lag of biological sequestration. Between site establishment, tree growth or soil carbon sampling and remeasurement cycles, and formal audit verification, projects routinely take three to five years before issuing their first credits.

Alternative land-based methods cannot immediately fill this gap. Key frameworks like Integrated Farm and Land Management (IFLM) remain under development, while sunsetted methods like Reforestation and Afforestation, and Beef Cattle Herd Management await finalised replacements. Savanna burning remains the exception: because it relies on changed fire management rather than tree establishment, it can begin generating creditable abatement from the first burn season, offering one of the few fast tracks to new supply while the broader pipeline rebuilds.

A clear demonstration of this is South Pole’s savanna burning project at Mt Mulgrave Station, spanning 280,000 hectares in Far North Queensland. By implementing strategic, early-dry-season cool burns, the project prevents destructive late-season wildfires, reducing emissions and generating ACCUs alongside traditional cattle operations. Beyond the revenue stream, the low-intensity burns protect native species and food sources from catastrophic fire damage, and combined with active feral animal management, the project enhances biodiversity and ecological resilience across a vast landscape, demonstrating how technical partnerships turn land stewardship into high-integrity, bankable assets.

Compliance buyers who assume market supply will simply materialise when post-2030 baselines start to bite harder are taking a significant risk. Waiting until the shortage hits means competing for limited supply in a spot market that is expected to tighten further. With ACCU spot prices trading in the high $30s, every year of delayed investment today compounds future compliance liabilities and limits credit availability precisely when it will be most expensive to buy.

Aligning capital, land, and industrial need

Solving this supply imbalance requires real capital deployment today, creating a strong commercial alignment between farmers, natural capital investors, and industrial emitters.

For agricultural landholders, integrating carbon projects no longer requires sacrificing productive farmland. When executed through practical technical partnerships, carbon projects sit alongside existing livestock or cropping operations, delivering a high-margin revenue stream that supports soil health, stock shelter, overall farm resilience, and regional economic development.

Technical carbon developers, such as South Pole, are executing this model across the country. By partnering with landholders, farmers, and Indigenous communities, they handle the regulatory, auditing, and administrative heavy lifting, alongside structuring the carbon financing itself. Financing has matured beyond simple fixed-price offtakes to include milestone-based payments, upside-sharing, and direct land co-ownership—allowing investors and obligors to structure development and price risk around their specific time horizons and risk appetites.

On the capital side, proactive Safeguard Mechanism obligors and forward-thinking corporate buyers are moving aggressively to secure their long-term position. Rather than taking their chances on future spot availability, leading organisations are creating dedicated investment funds, entering multi-year forward offtake contracts, and acquiring land directly to co-develop carbon projects. This approach locks in long-dated supply security while generating verifiable biodiversity and community co-benefits that strengthen social licence to operate.

The window to act is now

The expansion of the Australian carbon market to incorporate statutory compliance marks the arrival of a mature, institutional asset class. Key 2027 policy milestones—including the Safeguard Mechanism’s post-2030 baseline review and Climate Active’s phase-out—reinforce the same trajectory: legally binding requirements are displacing voluntary badges as the organising logic of the Australian carbon market, extending demand visibility well past 2035.

However, biological lead times wait for no one. Industrial buyers and institutional investors who rely on passive spot-market purchasing are exposing themselves to significant supply constraints just as the market’s largest source of demand becomes more binding, not less. The most effective way to guarantee access to high-integrity units is to invest directly in project origination today. For landholders, investors, and obligors, the setup is clear: long-term demand is assured, the market urgently needs high-integrity supply, and the regional communities positioned to supply it stand to benefit as much as the buyers securing it.

Author

Danielle de la Cour, Associate Director – Australia, South Pole

Danielle leads South Pole Australia’s carbon origination and development activities, supporting the delivery of high-integrity carbon projects across different methodologies in the land based sector. She works closely with landholders, and partners to originate new opportunities, guide project design, and support technical implementation through to ACCU issuance. Danielle also contributes to investment structuring, ACCU trading and procurement, and helps shape South Pole’s Australian market strategy to scale impact and unlock carbon supply.

South Pole

South Pole is the world’s leading carbon asset developer and climate consultancy. Since 2006, it has been a trusted advisor to governments, public sector organisations, and businesses on decarbonisation, and has used the power of markets to help channel climate finance to over 850 projects worldwide.

For more information, visit www.southpole.com or LinkedIn.