Proposed overhaul of Australia's carbon offset certification schemes to expand incentives to move towards net-zero

15 Dec 2021

Australia's carbon offset certification schemes, including Climate Active, its flagship carbon neutral certification scheme which the Commonwealth Government administers, will be reviewed by the Climate Change Authority.

The Minister for Industry, Energy and Emissions Reduction, the Hon Angus Taylor MP, announced the review at last week's Australasian Emissions Reduction Summit, which the Carbon Market Institute convened.

He also indicated that the Government is developing a range of other initiatives to:

  • focus more on carbon offsets with high-integrity reputations – most notably, Australian carbon credit units (ACCUs) created under the Carbon Credits (Carbon Farming Initiative) Act 2011,
  • encourage investment in low emissions technologies, and
  • make the schemes more attractive to higher emission industries.

What is prompting the review of Climate Active?

The review of carbon offset schemes and the development of new schemes recognise some current trends and recent events in this highly dynamic area.  For example:

  • there is a rapidly rising demand in Australia, and internationally, for robust, high-integrity carbon offsets schemes, as countries strengthen their regulatory regimes and policies to reduce net carbon emissions;
  • there has been a significant growth in Australia's voluntary carbon market, as more organisations strive for carbon neutrality and ESG considerations drive greater focus on genuine net carbon reduction, as indicated by the annual 20 per cent growth in Australia’s carbon trading market in the last few years, and the escalating ACCU spot price;
  • increasingly, regulators such as ASIC and public interest groups are examining statements about net carbon reductions (such as "net zero" claims) and the risk of "greenwashing";
  • there has been an acceleration of the development of methods for the creation of ACCUs, as demand for robust offsets increases and more industries seek opportunities to meet that demand (this also reflects the Government's response to the 2019 King review into opportunities for additional sources of low-cost carbon abatement);
  • carbon offset buyers and sellers are becoming more sophisticated and discerning in their consideration of available credits and the proposed uses of those credits;
  • international carbon offset markets, and Australia's participation in them, have been given a boost by the outcomes at COP26, including the further development of the rulebook under Article 6 of Paris Convention at COP26; and
  • as a result, the Australian Government is investing over $100M in the development of the Indo-Pacific Carbon Offsets Scheme (IPCOS).

Proposed offsets review

While the terms of the review of carbon offsets schemes have not yet been made public, the Minister indicated that it will focus on the offsets which are eligible under those schemes.

The trends we highlighted above are highlighting the need for demonstrable integrity in carbon offsets. Australia's ACCUs are generally recognised as having high integrity, and the law and policy supporting them as having a high degree of accountability and transparency.

Many offset schemes, including Climate Active, also allow the use of other offsets, including various kinds of international offsets.  In addition, the possibility of using additional kinds of offsets (including those to be created under IPCOS), and establishing new kinds of certification, have been raised.  The review may consider these matters as well.

Proposed changes to Climate Active and related schemes

The Federal Government has committed $10.4 million to modernise Climate Active and further expand the range of certifications available beyond the current 400 Climate Active certifications available across over 280 businesses. Minister Taylor commented that many businesses buying from Climate Active have a relatively small carbon footprint, and that his vision for Climate Active is for it to become a useful tool for Australia's largest energy using businesses.

The Minister foreshadowed future initiatives including:

  • new forms of recognition for businesses that purchase 100% ACCUs or purchase 100% renewable electricity (with a proposal to expand this to include emerging energy sources like hydrogen and biomethane);
  • a requirement for non-energy Climate Active certifications to use at least 20% ACCUs (as opposed to other forms of offsets), "in recognition of their integrity";
  • a new standard to recognise significant investments in low emissions technologies; and
  • guidance to assist the property sector to reduce and offset the embodied carbon in construction and building materials, which we anticipate will complement the expansion of NABERS and the opportunities in other sustainability rating schemes.

CERT – an NGERS tie-in scheme

Minister Taylor also encouraged organisations to sign up to the Corporate Emissions Reduction Transparency (CERT) scheme, which was launched in pilot phase at the end of November.  CERT is a net emissions disclosure initiative that allows organisations to disclose performance against their own emissions reduction targets, via links to the National Greenhouse and Energy Reporting scheme (NGERS).

Participation is voluntary and is open to all companies reporting more than 50 kilotonnes of emissions a year under the NGER scheme.  Companies can opt in to the CERT report pilot by 30 January 2022 using an online form.

It was noted that 14 large Australian businesses have opted in to the voluntary scheme.

Key takeaways for the move to net-zero

According to the Minister, the Australian Government sees its role as an enabler "supporting the private sector’s initiative, innovation and drive", and it is proposing changes to Climate Active to expand access to abatement recognition and encourage companies to continue working towards net-zero. Currently, Climate Active only recognises businesses, products or buildings for achieving carbon neutrality. The proposed changes will encourage larger emitters to consider taking further steps to reduce their emissions.

Organisations should consider their climate strategies in light of the changes indicated, to make sure their offsets strategies are robust and to take advantage of the increased opportunities once the changes to offset certification schemes are implemented.

It is also important to note that any changes to the Climate Active scheme will have a significant impact on all businesses as the scheme's eligibility criteria is regularly adopted by States and Territories who use their approval and licensing processes to impose offsetting requirements.

Thanks to Alice Brennan for her help in writing this article.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.