Greater transparency and more robust assessments means scaling up the carbon market should start without delay.
John Connor, CEO
As we digest the conclusions of the independent review of Australian Carbon Credit Units (ACCUs) led by Professor Ian Chubb, there are two key goals we must aim to achieve through the impending market reset.
Both are important. And all of us – those investing in carbon markets, those scrutinising them, and those regulating them – have a responsibility to keep both in mind.
The first, crucial goal is to implement the recommendations to bolster integrity in a timely and appropriately resourced manner.
These recommendations include an enhanced and more independent carbon abatement integrity committee, with a full-time chair, replacing the Emissions Reduction Assurance Committee as guardian of the scheme’s integrity.
In addition, ACCU purchasing and method development functions responsibilities, currently sitting within the Clean Energy Regulator, are recommended to be separated in order to avoid perceptions of conflict.
There are also important recommendations for greater transparency. These apply both to decision making and the link between activities funded by the crediting framework and the emissions reduction achieved. The review suggests a big driver of polarised views about the scheme is the fact that some relevant data is not available to third parties. This needs to change.
Important improvements or changes are suggested for three methods under scrutiny. Changes for human-induced regeneration are largely transparency-related. The current avoided deforestation method which relies on historic, mostly pre-2010 land clearing permits, should end, while new methods should be considered, as well as more limited baselines for future landfill gas credits.
Enhanced safeguard mechanism
Notably, the review concluded that the overall system has a sound framework and did not find carbon abatement had been overstated. While the review didn’t consider integrity issues to be widespread, some changes are clearly necessary to ensure the existing crediting scheme is fit for purpose and widely trusted.
However, fixing carbon market weaknesses and bolstering integrity measures, although essential, can’t be the only goal. We simply cannot afford not to expand the carbon market if we are to limit temperature rise to 1.5 degrees and address our twin climate and nature crises.
For that reason, the second key goal must be to rapidly scale up the production of robust, trustworthy carbon credits, while also sending clear signals to business to invest in at-source decarbonisation.
Big reforms like the enhanced safeguard mechanism will help facilitate this, encouraging businesses to find cost-effective ways to invest in emissions reductions while providing a framework for government to meet domestic targets and challenges.
The updated safeguard mechanism regime – soon to be released in draft form, and in place from July this year – will see the baselines of heavy emitter facilities decline over time, forcing them to surrender more ACCUs if they exceed these baselines.
In addition, new safeguard mechanism credits will act as an incentive for facilities to drop emissions below their baseline levels.
With the right settings, the strengthened mechanism will provide more powerful investment signals to the supply and demand sides of the carbon market.
This will in turn harness a significant proportion of the private sector capital required to meet and beat Australia’s 43 per cent 2030 emissions reduction target – a goal that Australia is expected to fall short of, based on current policy settings.
With an estimated $420 billion in new investment required in Australia to achieve a productive and competitive net zero economy by 2050, scaling up the carbon market is both an opportunity and a necessity.
Alongside growing private investment, there is still an important role for the government’s Powering the Regions Fund to continue targeted purchases of credits, not just for lowest cost abatement, as the Emissions Reduction Fund has done previously. This can pave the way for further technology development, as well as delivering greater social and environmental benefits.
Key role for market
For these reasons, it’s not surprising that a great many businesses, agencies and organisations that made submissions to the Chubb review – as well as voicing any concerns they had – echoed the view that the carbon market has a significant and important role to play in driving investment into Australia’s net zero transition.
They included Indigenous groups, environmental scientists, advocates of more efficient energy use, businesses attempting to develop new abatement technologies, and local councils, among many others.
The Chubb review, and many of those making submissions, have made clear that Australia needs a carbon market that is bigger as well as better.
The climate needs this investment now. And while at-source emissions reduction should always be the priority, we need a framework to drive investment in broader emissions reduction when that is not possible in the short term.
The reality is that without a carbon market that is both trusted and large, tackling climate change will take a lot more taxpayer money, and a lot more time.
John Connor is CEO at the Carbon Market Institute.