Land-Based Credits to Anchor Coal Compliance Demand in Australia

Demand for carbon credits from Australia’s coal mining sector is on course to more than double by the 2029-30 financial year, tightening an already strained compliance market. Modelling by the Institute for Energy Economics and Financial Analysis (IEEFA) puts net demand at about 12 million tonnes of CO 2 equivalent by FY2029-30, up from the 5.1 million Australian Carbon Credit Units (ACCUs) the sector surrendered in 2024-25.

Native Australian vegetation growing in the foreground with a coal mine in the distance. AI generated picture.

Coal is the largest single buyer of credits under the Safeguard Mechanism (SGM), Australia’s compliance scheme for heavy industry, using close to 2.5 times the volume of the next-largest sector, oil and gas. Its covered emissions reached 31.8 million tonnes of CO 2 equivalent in 2024-25, of which 19.5 million tonnes came from methane released as fugitive emissions during mining.

The structural issue is one of supply. Coal sources 60% of its surrendered ACCUs from land-based vegetation projects and about 36% from methane-related projects, and the pool of methane-based credits is contracting. The coal mine waste gas method behind much of that supply has closed to new entrants and will not be renewed. “Coal’s own (net) credit requirements are approaching 100% of the supply of methane-based ACCUs issued in FY2025-26,” IEEFA said.

Baseline design compounds the demand. Underground mines face steeply declining baselines and must surrender more credits to comply. Established open-cut mines with naturally low emissions intensities can bank Safeguard Mechanism credit units (SMCs) as their baselines drift toward the industry average.

“These grandfathered existing mines benefit about 10-fold compared with newly established mines whose target intensity factor is determined by a ‘best-practice’ approach — a rate more than 10 times lower,” IEEFA said.

With methane-based supply insufficient to cover projected demand, IEEFA expects land-based ACCUs to fill the gap, a trajectory it says could weigh on national and state emissions reduction targets. The Safeguard Mechanism review now under way is expected to examine baseline settings for coal mines beyond 2030 and the future role of carbon credits in the scheme.