Over the past month the value of Australian carbon credit units (ACCUs) have fallen by about 20 per cent.
The slump in price, half of which occurred in the space of about a week, has been attributed to a recent flood of 2.5 million carbon credits hitting the market.
However, to understand why such a large number of ACCUs have hit the market more recently, one must go backwards to go forward.
In July 2022, the Federal government appointed an independent panel, led by former chief scientist professor Ian Chubb, to conduct a review of the nation's ACCU and carbon crediting framework.
While the results of the review, which were released in January this year, found the ACCU scheme arrangements were "essentially sound", it determined that certain elements of the framework could still be improved.
The government agreed, in principle, to the panel's recommendations, which included a review of all ACCUs accrued under the human induced regeneration (HIR) methodology, to ensure these carbon projects conformed to the scheme's original intent.
Until the Clean Energy Regulator (ERF) completed its own review into projects using the HIR methodology, no future ACCUs could be issued for them.
It is also important to note that the HIR method accounts for about a third of all ACCUs ever issued.
Speaking on ABC radio last week RegenCo managing director Greg Noonan said the significant administrative task was being worked through by the CER, with many of the "180-200 projects" now "coming out the other side and able to issue credits".
"All those projects required a review by the CER prior to their next issuance, so that's been worked through and, as a result, we've seen about 2.5m ACCUs issued in a relatively short period of time," Mr Noonan said.
"The holders of those units, whether they are project developers, land holders or investors have taken those to market and that's why we've seen such a pullback in price."
Mr Noonan said the end of financial year had also likely contributed to selling pressure for some of the bigger players in the market, who typically looked to square up their positions ahead of their reporting dates.
"A culmination of those things has seen a pretty sharp retracement in price," Mr Noonan said.
For those of you playing at home, the HIR method relates to projects that store carbon by regenerating native forest.
A common, eligible activity under this method is grazing management for domestic animals.
"It's essentially looking to manage the timing and extent of grazing from domestic animals and removing feral animals to give the landscape the opportunity to regenerate," Mr Noonan said.
Mr Noonan said it would likely take some time to understand what the fundamentals will look like for the market in the coming year, but that most market analysts were expecting firmer prices in the second half of the year.
"I think once we see this selling subside, we will start to get some signals from buyers," he said.
"Obviously July 1 marks the start of the new safeguard mechanism for large emitters which determines their baseline emission requirements and how much they have to reduce those by over the coming years, so they're starting to assess what their offset requirements are going to be.
"We will also get a bit of a feel for what we're seeing in terms of new project registrations.
"The HIR method is actually due to sunset on the 30th of September so there has been a flurry of new HIR projects looking to register ahead of that deadline.
"I expect that we will move back into that range of $33-$40 we have been in for most of the past four to five months."