Australian climate advisers recommend establishment of national carbon market


Australia’s Climate Change Authority recently suggested Australia establish a transparent national carbon market and hint at integrating voluntary and compliance carbon markets.

Under the new Labor government, the country has set a goal to cut carbon emissions by 43% below 2005 levels by 2030, significantly more ambitious than the opposition’s target of a 26% – 28% reduction over the same period. 

The policy change brings businesses in the country both risks and opportunities as countries across the globe march toward net zero by 2050.

The Australian Carbon Credit Units (ACCUs) scheme is one method used by Australian businesses to cut their emissions. They can acquire ACCUs to offset their emissions by planting new trees or purchasing them on the secondary market. 

One ACCU is the equivalent of one tonne of CO2 or its equivalent that a project avoided or reduced.

The Emissions Reduction Fund (ERF), which was established by the Carbon Credits Act, launched the ACCU market in 2011. This voluntary carbon market program aims to incentivize organizations to reduce their carbon footprint using ACCUs.

However, critics believe that the voluntary market is a scam for it lacks additionality for most of the credits. This means that projects that generate carbon credits could have been done anyway without carbon financing.

After conducting several studies, Emissions Reduction Fund designer Andrew Macintosh claimed that there are serious concerns about the integrity of ACCU scheme. 

He estimated that the “vast majority” of 30 million credits hadn’t captured any extra carbon than without the credit. 

Thus, the federal government conducted an independent investigation into the ACCU's integrity last July.

The federal government looked into the governance of ACCU scheme, checking whether the methods of generating ACCUs in line with the Offset Integrity Standards and the general impacts of activities incentivized under Australia’s carbon crediting framework. 

This inquiry and the recent policy shift could increase the demand and prices for ACCUs.

The Safeguard Mechanism was established in 2016. Under the system, regulated emitters are allowed to offset their emissions by using cleaner technology or by purchasing carbon credits including from other polluters who have extra credits.

This makes the pollution caps to tighten gradually and gives businesses time to modify their operations to reduce their emissions. 

Currently, 215 of Australia's largest polluters have a cap on 501 million tonnes, which is equivalent to 28% of the country's emissions.

Critics claim that putting emission cap on companies is like a “sneaky carbon tax,”  because if emitters surpass their limit, they are required to purchase carbon credits to offset excess emissions or they have to pay fine. 

It’s estimated that companies are expected to spend $1.68 billion on new technologies and carbon offsets under the mechanism.

The Australian Climate Change Authority believes that a release of a “National Carbon Market Strategy” for the country will help speed up emissions reduction, stating that the strategy can make Australia’s carbon price more visible and understandable, enhancing the integrity of offsets, and clarify the role of domestic and international units in the mix of voluntary action and compliance mechanisms to accelerate decarbonisation.

The Authority also recommend consideration of evolving rules for international carbon trading to meet the goals set out in the Paris Agreement, setting out the government’s strategy for the role of carbon markets in helping achieve Australia’s Nationally Determined Contribution (NDC) under the Paris Agreement.

In addition, to consider the eligibility criteria for units recognized under Climate Active and the Indo-Pacific Carbon Offsets Scheme (IPCOS), including introducing a phase out of older units and reviewing others again by 2025.

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