03) This article series will keep you informed in the lead-up to the COP 26 climate meeting in November. Stay tuned…
As COP 26 approaches, the drum beat of those advocating for Net-Zero Emissions by 2050 is growing very loud. Companies are signing up for voluntary offsets to meet their targets, and regulated organisations are pushing up the price of mandatory credits.
But how will the market evolve? Are voluntary credits sustainable as regulations tighten? And can we expect a global agreement on carbon credits at COP 26?
OnImpact spoke with John Connor, managing director of the Carbon Market Institute, to find out.
Carbon Market Institute
The Carbon Market Institute is an industry association for business leading the transition to net zero emissions, and those developing carbon offset projects. They administer the Australian Carbon Industry Code of Conduct, and advocate for effective climate policy.
This week the organisation released results from a survey on their members that showed 88% of respondents believe Australia should set an economy-wide zero net emissions target by 2050. Also, that a vast majority, 84%, also want stronger 2030 targets.
John explains that investors simply want certainty, and that while demand for voluntary offsets is strong, it’s consistent policy that’s really needed.
“An important thing for investors, is that the more we delay, the longer and the more abrupt the changes are going to have to be. And this year, in the survey, we also added a new question that showed that policy uncertainty is one of the major barriers for investment. And so we are seeing a very dynamic, voluntary carbon market at the moment. But, that’s all froth and bubble unless we have the substance of some stronger targets and trajectories and public policy as well.” John says.
“It is unusual, that we’re seeing an escalation of voluntary market activity, carbon markets are growing despite the (COP 26) negotiations.”
“We need to align the two engines, the private and the public policy engines, we’re not going to deal with this issue and the urgency that it requires, and so it’s not an either/or, it’s definitely an and.”
Stewards of the Market
The Carbon Market Institute don’t issue carbon credits, but they advise on the development of the market, and they advocate for regulations that will boost the ambitions of their members.
“We see ourselves more as stewards of the market, we’re trying to promote the best performing systems. I think, by and large, Australia’s got a pretty good policy architecture, but unfortunately it’s got rubbish policy ambition. But the policy architecture remains pretty sound.” John Connor says.
The organisation has cemented its influence through the development of a carbon industry code-of-conduct, which informs offset issuers and offers state governments a form of oversight.
“We administer one of the world’s first ‘carbon industry code of conduct’. We make sure that those project developers are working at best practice with landholders, with investors, and with other community stakeholders. We’ve built up over three years, there’s an independent review panel, and it’s quasi-regulatory in that states are enforcing it. So we’re quite active in that dimension, but not necessarily accrediting systems.” John Says
“You’ve got to have integrity in the units but also integrity in the transition. ACCU spot prices are rising faster than house prices. And that’s why we need stronger commitments on targets, but also policies and things like the safeguard mechanism can deliver that. It’s suboptimal to what we did have under Gillard, which price and a cap on all pollution, but at least we’ve got some architecture that we can use as a springboard.”
Carbon Offsets and COP 26
COP 26 has generated more interest and buzz than any multilateral meeting of world leaders in recent memory. People are hungry for progress on climate action, but as we’ve learned from previous meetings, agreement on big issues is rarely assured.
“COP 26 was always meant to be an ambition COP, not necessarily a negotiation COP.” John says.
“The meeting was going to be in 2020, to mark the starting point of the new Paris Agreement regime. It was a point where people were to review their country commitments from 2015 and 2030, and so there’s focus on that. Most interesting in the significant increases in ambition from some countries. But so far, not from Australia.”
Australia’s recalcitrance to increase its ambitions has not gone unnoticed in global policy circles, and may be behind our Prime Minister’s unwillingness to attend the conference. A reputation that wasn’t helped by efforts to game the system through counting Kyoto credits in current reduction totals.
“There are principles of integrity that need to be built in there, and of course questions about what happens with the pre-Paris Kyoto rules, which is still lingering. Australia notionally put that aside, but it’s still not black and white, there’s still some ambiguity there.” John says.
“So I think the important thing is, like in other areas of investment, we’re seeing a rapidly developing taxonomy and transparency around these issues. It’s a literacy challenge as much as anything for investors, and a cornerstone for it all has to be integrity, and I think we’ll see that both in formal and informal systems that will evolve.”
BCA Calls for Stricter Emissions Cuts
A flurry of new reports are being published this month as COP 26 approaches at the end of the month.
The Business Council of Australia has reversed their long-held resistance to deeper emissions cuts with a new report that cites the huge economic opportunity surrounding net-zero by 2050 ambitions.
The report suggests Australia could see an economic dividend of $890 billion and 195,000 jobs over the next 50 years, if we “accelerate emissions reduction and seize the first mover advantage”.
With most developed countries having already made net-zero commitments, we’re clearly late to the party, but the faster we get serious, the less the dire the economic repercussions will be.
As Tim Reed, BCA President, says; “Our biggest trading partners are already making this transition and Australian businesses are taking action, as are global capital markets.”
Going even further is mention of the ‘Safeguard Mechanism’. This is a key part of the current government’s emissions policy, and is meant to gradually increase the baseline of emissions allowed by the country’s 150 top polluters. But sadly it hasn’t been very effective, as company’s are able to increase emissions and move their baseline. As with all policy, enforcement is as important as design.
“With an enhanced Safeguard Mechanism we can send clear signals to the market, drive investment and deliver more jobs and stronger regions, while still protecting jobs from carbon leakage.” Tim Reed of BCA says.
The report goes further, arguing that the threshold at which companies are captured in the scheme should be reduced from 100,000 tonnes of carbon per year, to 25,000 tonnes.
Grattan Supports the Importance of Carbon Offsets
The Grattan Institute joined the chorus of white-papers with its research titled: Towards net zero: Practical policies to offset carbon emissions
Echoing John Connor’s sentiment, the Grattan report argues that while carbon offsets do have risks and some vocal detractors, the pathway is important as the pathway towards Net-Zero will involve emissions that can’t be eliminated, and which instead will need to be offset.
“Australia’s governments should be clear about the role of offsetting in each policy they implement in pursuit of net zero.” Says the Grattan Institute’s Energy and Climate Change Program Director Tony Wood.
“They should take an ‘avoid emissions first’ approach, set clear rules, maintain high standards of integrity, and be clear about why offsetting is necessary.”