When companies or investors talk about reaching net-zero emissions by 2050, the goal is to reduce pollution and fight climate change, but it also implies a reliance on buying carbon offsets. 

No matter how much hard work an organisation does to decarbonise their operations, they’ll always have some measure of emissions, and if they want to achieve carbon neutrality, they’ll need to fund projects that remove emissions, to balance the carbon account.

The concept has always been contentious, essentially accepting one entity’s pollution, as long as they pay someone else to contribute additional carbon abatement, whether it be through tree-planting or building wind farms. It sounds like an accounting trick, but the process is sound, as long as the emissions reduction project is both additional and legitimate, and as long as the carbon accounting ledger remains reliable. 

When you take stock of the immense volume of industry that have committed to net zero, you begin to realise the mammoth task that will be required to build and manage this fledgling carbon market. It continues to grow at a blistering pace, and both the market and the frameworks are evolving along with it.

The Australian Carbon Offset Market (just don’t call it a carbon tax) 

Australia doesn’t currently have an official carbon price. The concept is political dynamite, and few are willing to touch it after the turmoil it’s caused in recent decades. 

So what we’re left with is a voluntary scheme that allows carbon credits to be traded. 

At the core of the Australian market are Australian Carbon Credit Units (ACCU), these are issued by the Clean Energy Regulator (CER) and can be claimed by businesses, farmers and councils to earn ACCU credits. Each ACCU represents one tonne of C02 abated, and must fit predetermined criteria. 

The current ACCU price is $22.40/t, a new record high. The price is a proxy for the price of carbon in Australia, with demand coming from an increasing willingness to achieve carbon neutrality. 

And as demand for credits grows, the current over-the-counter trading model is set to be overhauled. The CER is developing a carbon exchange, so that credits can be traded more easily, to increase transparency and reduce transaction costs.

Hang on, you may say, if there’s no regulations around emissions, why are companies bothering to pay for offsets? The answer is that they can see the writing on the wall. They’re either driven by their customers and investors to reduce emissions (most often aiming to reach net zero by 2050), or they recognise that regulation will be coming, one way or another, so they’re getting in while credits are cheap.

And of course we live in a global marketplace, so even without a mandated carbon price from the Australian government, our export-exposed industries may still be forced to clean-up their pollution in-line with the efforts of our trading partners, as heavy industry, in regions such as Europe, are likely to seek trade sanctions to even the playing field. 

The positive impact side of the trade is that the carbon offsets, paid for by polluters, are used to fund decarbonisation projects that otherwise wouldn’t have gone ahead. Whether it’s reforestation projects by Greenfleet,  bushfire management by traditional owners in Arnhem Land from TEM, or energy-efficient cook-stoves in Rwanda from Carbon Neutral. All of these projects are certified as having genuine impact, 

“We currently us Greenfleet, and that’s because we feel our users will relate to their approach of sequestering carbon with trees. It includes kelp growing, and planting biodiverse forests and that resonates more with our user base. Plus, they’re an not-for-profit, and that helps us reduce the likelihood of green-washing.” says Neil McVeigh, Founder of Greener

There’s a lot of choice in the market, but so far, there’s no universal standards, so the nature of the offsets varies, and so does quality.

Carbon Credit Standards Vary Across Global Jurisdictions

As demand for carbon credits surges, supply is moving fast to keep up. So too are the various standards that seek to monitor offsets, and offer accreditation, so that buyers can be guided on quality and longevity. Tom Schroder, Head of Climate Action at South Pole, explains that global standards are an important guide for more localised frameworks:

“I don’t think there’s going to be one global standard, and that’s largely because there are jurisdictional differences. For example, you have the ACCU standard, which is developed by the Australian Government, and then you have an international voluntary standard like the CDM from the UN. Generally, jurisdictions will set-up standards as they please and they’re often guided in the development of their standards by these international voluntary standards. So these are in a sense, the trailblazers, the pioneers, of what will then later be adopted more broadly by different jurisdictions.” 

Progress is further guided by the development of a range of higher-level frameworks that vet and assure groups of offset types.

“We’re seeing a kind of convergence, where different bodies are now looking at these standards and approving them, or deeming them suitable, to count towards national commitments and abatement. CORSIA is an example, the Carbon Offsetting and Reduction Standard for International Aviation. It’s a specific set of standards for the airline industry, to identify offsets that are deemed appropriate. Other examples include the Taskforce for Scaling Voluntary Carbon Markets or the Voluntary Carbon Market Integrity Initiative” Tom says. 

Building the market

Climate change is a market failure, probably the biggest we’ve ever seen, and so it’s both obvious and precarious to use a market mechanism to solve it. 

Mark Carney was previously the Governor of the Bank of England, so, as one would expect, he’s a fierce proponent of using the market to decarbonise our atmosphere. He’s currently building a unified market for carbon offsets, and the first stage is convening the Taskforce on Scaling Voluntary Carbon Markets

By all accounts progress has been slow, and that’s due to all of the problems we’ve discussed thus far. Questions of what activities can be counted as avoided emissions, who can claim them, how long they last for, and how maintenance of the projects can be monitored for as long as 100 years. It’s a big problem, the solution was never going to be easy. 

Mapping a Pathway to Net Zero 

Net zero emissions by 2050 is a commitment, but it doesn’t define the pathway or the model to get there. And while some firms with a lower carbon intensity will find the process easier, think software companies, others will have to completely reshape their products and their processes, think oil giants like Shell and BP. 

There is, however, nuance in the way that different organisations can build momentum on their decarbonisation journey. Firms just getting started are able to use ‘avoidance offsets’ while those who have progressed and reduced their operational emissions as much as possible must only use ‘removal credits’ to compensate the remaining unavoidable emissions to get to net zero. Tom from South Pole explains:

“The Net Zero guideline by the Science Base Target Institute postulates that, while you are decarbonizing your core business, it’s admissible to purchase offsets from avoidance projects. These avoidance credits are allowed on the pathway to zero, until companies have really abated and reduced all of the emissions they can in their own operations.

And once you’ve reduced emissions to a residual point, they’re then only allowed to use removal credits. So those are credits that permanently sequester carbon, such as tree-planting projects, soil carbon projects, biochar, or blue carbon as well.

It’s generally the case that you cannot rationalise all emissions away. It’s impossible to get to neutral without ever buying any offsets.” 

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