Ensuring carbon credits are robust and credible: the Independent Review of Australian Carbon Credit Units

Brendan Bateman
01 Sep 2022 Time to read: 2 MIN

Given the increasing importance that carbon markets will play in facilitating cost-effective emissions reductions across all sectors of the Australian economy, the ACCU review is timely.

A robust and credible crediting system is critical to provide the confidence necessary for the carbon market that have developed around the Emissions Reduction Fund (ERF), and to support the broad range of policies now being implemented to achieve Australia’s new 2030 emissions reduction target of 43% below 2005 levels, and ultimately the net-zero 2050 target. This includes increased obligations on covered facilities under the Safeguard Mechanism who can use Australian Carbon Credit Units (ACCUs) to meet obligations to keep within emissions baselines. Finally, it’s also key to facilitating future trade in emission reductions under Article 6 of the Paris Agreement.

It’s with those needs in mind that the Federal Government established an independent review in July 2022 of the framework and processes that result in the issue of ACCUs.

The stated purpose of the review is to ensure ACCUs and the carbon crediting framework maintain a strong and credible reputation supported by participants, purchasers and the broader community. At its heart is the goal of ensuring the crediting system contributes to Australia’s emissions targets by recognising genuine emissions reduction or avoidance activities.

The review was partly in response to criticisms levelled at the integrity of a number of methodologies approved under the ERF, specifically the Human Induced Regeneration, Carbon Capture and Storage, Avoided Deforestation and Landfill Waste Gas methods. This necessarily raised questions about the emissions avoidance or reduction achieved by projects based on those methodologies, and the ACCUs issued in respect of them.

The independent expert panel undertaking the review, chaired by the former Chief Scientist Prof Ian Chubb, released a consultation paper on 29 August 2022 in which the panel outlined some guiding questions across keys areas generally consistent with the panel’s terms of reference:

  • whether the scheme’s governance structure is fit for purpose. This includes consideration of the current roles and responsibilities of the Department, the Clean Energy Regulator, the Emissions Reduction Assurance Committee and the Climate Change Authority;
  • whether the methods by which ACCUs are generated meet offset integrity standards. The panel is to specifically consider the claims made against the maligned methodologies;
  • whether the method development and review processes are effective;
  • co-benefits and other impacts – how can co-benefits from projects such as improved biodiversity and participation of First Nations people be increased, and should they be recognised and measured;
  • whether current arrangements to manage potential adverse impacts are appropriate – this includes negative impacts on agricultural productivity and regional communities;
  • the relationship with action under Climate Active voluntary certification, including the new requirement for participants to use a minimum 20% ACCUs to meet carbon neutrality; and
  • the capacity of the existing crediting framework to facilitate future abatement needs and remain fit for purpose to meet the 2050 net-zero target.

Given the increasing importance that carbon markets will play in facilitating cost-effective emissions reductions across all sectors of the Australian economy, and trade in mitigation outcomes between countries under the Paris Agreement, the review and with it the potential recalibration of the ERF and methods made under it are timely. This also coincides with the current consultation process in relation to the "enhanced" Safeguard Mechanism and the proposed crediting regime under that mechanism due to commence from 1 July 2023. The ideal outcome would be design elements of the crediting regimes that are robust, aligned and complementary across the ERF and Safeguard Mechanism.

Submissions on the ACCU review are open until 26 September 2022 and the report from the independent panel with recommendations is due to be submitted to the Government by 31 December 2022.

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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.