Are Australian Carbon Credit Units a credible way to offset emissions?
The independent panel review of Australia’s Carbon Credit Units (ACCU) scheme in December 2022 (Review) made several recommendations to strengthen its credibility. Rennie’s view is that with these changes in place, ACCUs remain a viable option for organisations to offset carbon emissions as well as invest in ACCU-generating projects.
About the Australian Carbon Credit Unit (ACCU) Scheme
Australian Carbon Credit Units (ACCUs) are measurable, verified units of emissions reductions that businesses, landholders, and communities can obtain from their certified carbon projects. These carbon projects are often referred to as ‘carbon offsetting’ projects, which facilitate the reduction or elimination of greenhouse gases (GHGs) to compensate for emissions that occur as a result of a firms, landholders, and/or communities activities.
To obtain ACCUs, the emitting firm will pay a fee to the administering body, the Clean Energy Regulator (CER), funding an Emissions Reduction Fund (ERF) project. The emitting firm is then given ‘credit’ (ACCUs) which certifies the offsetting of emissions, helping firms to reach emissions targets. The credit can also be sold to the Commonwealth in an auction.
Independent review of ACCUs Scheme
1. Need to review the scheme
While there are already realised benefits of the ACCUs scheme, a review was initiated to ensure the scheme is effective and credible. Early last year, the former chairman of the Emissions Reduction Assurance Committee, Professor Andrew Macintosh, expressed concerns around how the methodologies used in the existing ACCU scheme were resulting in erroneous carbon credits. According to the analysis by Allan Gray (Responsible Investment Company), many carbon credit projects do not generate reductions beyond what would have already occurred if the ACCU scheme was not in place. Examples of flawed carbon credits includes ACCUs tied to avoiding deforestation in areas where there was no deforestation, or for planting trees in areas where trees already exist, or for carrying out back burning that had already been planned. The Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investment Commission (ASIC) have raised similar concerns. As a result, the Federal Government appointed an independent panel to review the governance and integrity of the ACCU scheme. The review was led by Professor Ian Chubb AC.
2. Key asks of the review
The objective of the Review was to ensure that the ACCUs and the carbon crediting framework maintain credible among participants, buyers, and the broader community. The Review included an assessment of:
· the governance mechanisms and legislative requirements of the carbon credit system; and
· the integrity of the key methodologies used.
The Australian Academy of Science was appointed to conduct an independent analysis of the major methods to offset carbon including human-induced regeneration, deforestation, landfill gas, and carbon capture and storage techniques.
3. Timeline
The Review was commissioned in July 2022 and 16 recommendations were submitted by the panel in December 2022.
Key recommendations from the review:
· Increasing Transparency:
The Review recommends amendments to the scheme’s governing legislation to include more transparent data and information sharing arrangements. It identifies that data should be made public wherever possible while protecting privacy and confidential business information. In addition, the panel suggests having a process led by the proponent and supported by the Department of Climate Change, Energy, the Environment and Water (DCCEEW) in the development and modification of methods to ensure better engagement of participants, allowing them to gain confidence in the scheme.
· Effective Governance:
The Review recommends having clear roles and responsibilities of the assurer, regulator, and administrator. Policy development should be undertaken by sufficiently resourced separate bodies to ensure the smooth operation of the carbon offset markets. Currently, the CER holds multiple roles for developing methods, regulating projects, issuing ACCUs and administering government purchases of ACCUs, resulting in potential conflicts of interest and reduced confidence in scheme arrangements and governance. Going forward, the panel suggests responsibility for the purchase of ACCUs should be given to another Australian government body to avoid conflicts of interest.
· Re-establish Emission Reduction Assurance Committee:
The review recommends that the Emissions Reduction Assurance Committee (ERAC) be reinstituted as the Carbon Abatement Integrity Committee (CAIC) to ensure the integrity of the method.
· Removing the Avoided Deforestation method:
The Review has recommended that no new project registrations be allowed under the current avoided deforestation method. The current method is a means to avoid the emissions associated with land clearing, however, to be eligible to register to an avoided deforestation project, a proponent must have an existing clearing consent. As deforestation has been phased out over time, the issuing of land clearing permits has also reduced, and there are uncertainties about the volume of existing eligible permits. The Carbon Credits (Carbon Farming Initiative – Avoided Deforestation 1.1) Methodology Determination is due to sunset on 1 April 2025, however it is unclear if any additional projects could be registered between now and then. Instead, the Review recommends that consideration be given to developing new methods that incentivise the maintenance of native vegetation that has the potential to become a forest, as well as maintaining existing forest at risk of land-use conversion.
· Establishing a proponent-led development process for developing and modifying methods:
The Review recommends establishing a proponent-led process to develop and modify methods, replacing the current process with an open EOI process that involves the CAIC setting priorities for method endorsement and approval. The Review found that the current process for developing and modifying methods impedes timely and effective emissions reductions and that proponent-led method development is consistent with commonly accepted international practice.
· Developing co-benefit procedures:
The Review recommends having procedures in place that support the transparency of different project characteristics and types of co-benefits associated with ACCUs. Co-benefits relate to the non-carbon benefits to proponents, the broader community, and to the environment. The Review has suggested the CER works in consultation with market participants and stakeholders to develop these procedures, and suggests that proponents provide evidence to the CER before claiming a project is co-benefit.
· Delivering the desired outcomes while maintaining integrity:
In order to continually improve the delivery of the intended outcomes of the ACCU scheme, the Review recommends:
§ Developing new ways of preserving and maintaining native vegetation. Project registrations under the current method of deforestation avoidance should be discontinued.
§ Adjusting the baseline and credit period extensions of new landfill gas projects through a transparent and predictable approach.
§ Removing the option to conditionally register ERF projects on Native Title Lands (as defined in the CFI Act) before obtaining consent.
§ Accrediting and regulating carbon service providers, including carbon agents and market advisors.
§ That the Australian Government should continue to improve the capacities and capabilities of rural and remote communities and encourage them to participate in and benefit from the scheme.
What does this mean for organisations looking to purchase ACCUs or developing new ERF projects?
The Australian Government has responded to the Review of ACCUs, accepting all 16 recommendations in principle. The Government will consider funding arrangements for implementation of the recommendations through the 2023-24 Budget.
Companies currently creating ACCUs can expect credits for landfill gas projects used to reduce methane emissions to become stricter over time, and for there to be tougher oversight of regeneration of forests projects. Greater transparency and data sharing to support greater public trust and confidence should also be expected by companies.
Companies aiming to invest in an avoided deforestation project will also be impacted. However, it is likely that a new method, with greater credibility, will be developed should an avoided deforestation project no longer be an option.
With the implementation of these recommendations, organisation’s looking to purchase ACCUs or develop new ERF projects will have greater certainty around the credibility of their purchases and developments. The implementation of these recommendations also provides organisations with various opportunities, including:
· The opportunity to better assess, understand and manage potential project impacts and opportunities through greater transparency in data and information sharing arrangements.
· The opportunity for innovation through a proponent-led method development model, providing organisations greater flexibility in their carbon abatement approaches.
· The opportunity for organisations and their stakeholders to realise the co-benefits associated with ACCUs through the introduction of established procedures.
How can Rennie help?
· Carbon offset Strategy: Rennie has the in-house capability to develop and implement offset strategies for organisations seeking to reduce their emissions through the purchase or production of offsets.
· Identifying and assessing new Emission Reduction Fund (ERF) projects: Rennie can assist organisations looking to develop Emission Reduction Fund (ERF) projects in identifying and assessing the ACCU potential of land and developing the business case for investment.
· Decarbonisation strategy and solutions: Rennie has a broader decarbonisation strategy and solutions offering to help clients understand future scenarios, analyse impacts and opportunities, and identify strategic priorities for sustainable success.