More than 100 of Australia’s biggest greenhouse gas emitters from the mining industry want Labor to cap the price of scarce carbon credits to stop speculators making offsets so costly that resources firms are forced to prematurely close mines.

The Minerals Council of Australia issued the “must have” demand on Friday to cap carbon at a suggested level of $24 a tonne after publishing an analysis that suggests industry will need the equivalent of 170 million tonnes in Australian Carbon Credit Units, a figure that vastly outstrips likely supply of 126 million tonnes from carbon sinks.

The move puts the industry on a collision course with activists, the Greens and independent senators who want Climate Change Minister Chris Bowen to eliminate the use of carbon credits for coal miners under pending reforms to a nationwide compliance mechanism aimed at helping meet Australia’s 43 per cent emission target.

It will also unsettle existing ACCU market investors betting on significant price gains in coming years as demand for the benchmark units accelerates.

Tania Constable, chief executive officer of the MCA, whose members account for more than half of the 212 facilities under the safeguard mechanism that release more than 100,000 tonnes of carbon a year, said the resource industry feared the lack of a price cap on offsets similar to ones that exist in Canada, the UK, Europe and in some states.

She warned the omission could see unit prices leap to “hundreds and hundreds of dollars” per tonne, an existential burden for multibillion-dollar facilities awaiting technological solutions to cut their emissions.

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“We’ve been very clear that we must have an additional price risk management measure in the safeguard mechanism,” Ms Constable told AFR Weekend.

“This is critical to the future of mining and future investment in Australia. It is these industries that are doing the heavy lifting at the moment in terms of economic recovery.”

The Minerals Council’s stance was lent support by the Business Council of Australia and, intriguingly, The Australia Institute, which said in separate submissions to Mr Bowen that fears about carbon units were well-founded.

“This is critical to the future of mining and future investment in Australia,” said Minerals Council of Australia chief executive Tania Constable. Alex Ellinghausen.
Australia’s national 43 per cent target puts the economy on an ambitious trajectory to cut annual emissions from about 500 million tonnes in 2021 to about 350 million tonnes in 2030, leaving an effective nationwide “emissions budget” of 4380 million tonnes over that period.

“What policymakers and investors don’t know, with any certainty, are the costs for individual sectors associated with achieving the budget,” said the BCA, which added that the price of offsets “is likely to be instrumental” in ensuring polluters subject to the safeguard mechanism deliver their share.

It warned that speculators and potential shocks to the credibility of carbon units – for instance as a result of the ongoing Chubb Review into junk units – were among reasons why offset prices may be higher than the long-run cost of abatement for periods of time.

Concerns about the credibility of carbon credits are set to intensify as the Chubb Review nears completion by the end of the year.

Greens leader Adam Bandt said the party did not support offsets “being used as a free pass for coal and gas to keep making the climate crisis worse”.

“We can’t offset our way out of the climate crisis. Offsets are paying someone else to go run a marathon for you while you stay at home on the couch.“

One outspoken critic of the quality of Australian carbon credits, ANU law professor Andrew Macintosh, estimates the Clean Energy Regulator is approving around 16 million ACCUs a year, of which he says between 3 million and 4.5 million are legitimate.

A safeguard mechanism discussion paper released by Mr Bowen’s department in August makes no mention of capping the ACCU market because it will “respond to additional demand from safeguard facilities at reasonable prices etc”, the BCA said.

“While this expectation may turn out to be well-founded, a survey of overseas approaches and the rationale for cost containment measures in other jurisdictions is warranted … as a backstop to the potential for extreme market outcomes,” it said.

The Australia Institute said Mr Bowen’s planned safeguard changes would only drive “further demand for low integrity carbon credits” and that access should be limited to “drive investment in new technologies and processes to reduce reliance on fossil fuels”.

Echoing the MCA, The Australia Institute called on Mr Bowen to consider a fixed-price voluntary “penalty payment” of $25 a tonne, which is below the current ACCU spot price of $30.25.

That would provide “certainty for major emitters, a significant source of revenue to the Commonwealth, and reduce pressure on the Clean Energy Regulator to approve low integrity ACCUs to meet rapidly growing demand”.

“Instead of purchasing 126 million ACCUs (what Reputex claim will be available on the market), facilities could pay the fixed price penalty and the Commonwealth would raise $3.15 billion.”

That money could then be used to spur climate solutions, according to the institute.

Ms Constable said miners would be particularly vulnerable to extreme price volatility in offset markets during the early years of the safeguard mechanism changes, which Mr Bowen has promised will take effect from July 1, 2023.

“The potential is there for speculators to come in a say ‘oh, there’s no price cap in Australia. That’s a good deal. Let’s buy up those ACCUs’.”

That would then leave facilities still awaiting technological solutions to mature exposed to the short-term price spikes.

“We’re worried about these early years that we have facilities that are significantly exposed to that upside price risk,” Ms Constable said.

A price cap was “fundamental to competitiveness in Australia”.

The Minerals Council said Mr Bowen could add to his safeguard mechanism reforms a measure similar to the Renewable Energy Target’s shortfall charge.