In a bid to shore up confidence in Australia’s carbon credit market, the newly elected Labor government has announced an independent review into Australian Carbon Credit Units (ACCU).
The carbon credit market is central to the labor government’s promise to reduce emissions by 43% by 2030. The $5.4 billion market has been under fire for having rubbery governance as well as simply not being effective at reducing the nation’s emissions of GHG emissions.
It comes on the heels of stinging criticism of the scheme from Professor Andrew Macintosh, the former head of the government’s Emissions Reduction Assurance Committee, who suggested the scheme was largely a ‘sham’, and that a majority of issued credits didn’t represent genuine emissions reductions.
Energy and Climate Change Minister Chris Bowen announced the review, it will be led by Professor Ian Chubb, who was Australia’s Chief Scientist until 2015. Mr Chubb will lead a panel of four experts, with a report due to be submitted to government by the end of the year.
“We are now on the cusp of a historic shift from taxpayer-funded crediting scheme to one that will be driven primarily by the private sector as it takes up demand from greater compliance obligations, but also voluntary commitments in the transition to net-zero emissions.” says John Connor, CEO of the Carbon Market Institute.
“However, for the market to serve its purpose of driving real and additional emissions reductions and removals, and directing finance to where it’s most needed, the priority must be to make sure our carbon credits and their governance are fit for purpose.”
Carbon credits are already a key pillar in many organisations’ pathway towards net zero emissions, but for Australia’s biggest polluters, the scheme will become even more important when the government introduces a new ‘safeguard mechanism’ next year.
“Effective changes to the ACCU system will not be popular in the mind of emitters! It’s vital that the Safeguard Mechanism is employed for its intended purpose without providing convenient loopholes for emitters to then exclude themselves from participation. If you subscribe to the notion that a national carbon market should exist to help facilitate a country’s achievement of its Nationally Defined Commitments (which I do!), it would be a very basic and logical expectation that there is a level of compulsory participation by the nation’s largest emitters.” says Guy Dickinson, founder of BetaCarbon.
Most criticism of carbon credits, as a concept, comes from questions about the integrity of the abatement source. Whether it be assessing the true sequestration impact of land-use changes, or the economic reality of carbon capture and storage (CCS).
It’s a unique economic model that relies on a challenging set of incentives. Professor Macintosh mentioned these challenges in his criticism of the scheme, suggesting that buyers of credits may be focussed only on their compliance value. They may simply want to tick a box, with little regard for the true carbon abatement credentials promised by the credit.
For the team at Carbon Growth Partners it’s vital that the government improve governance and instill more confidence in market markets. The potential impact is huge across a whole range of projects.
“From an impact perspective, what is really important is to help finance and bring to life projects that can help society to remove and avoid carbon emissions. While ACCUs and the carbon market aren’t perfect—with the growth in carbon markets, the types of participants, and prices mean that you can start really thinking genuinely about the economic viability of different models, income sources for landowners, indigenous groups, farmers, local communities and carbon as bona fide investable asset.” says Stephanie Russo, Chief Strategy Officer at Carbon Growth Partners.
“We’ve seen a decade of moving goal posts, inconsistent policy settings and piecemeal interventions in the markets, the review is an opportunity to set a clear and consistent direction for the market.”
Guy Dickinson argues the review should focus on the types of credits currently being used by Australia’s fossil fuel sector.
“The main concern is ensuring methodologies are living up to stakeholder and community expectations. There should be a focus on methodologies that currently facilitate emissions by the fossil fuel sector, such as through CCS. This is about ensuring future supply of credits is robust and can be trusted by the corporates and individuals who are placing their faith and capital in the system.” Guy says.
“Ultimate approval of methodologies should be scientifically based, with conflict-of-interest frameworks established to ensure decisions are not politically biased.”