New advice from OECD specialists on carbon credits provides useful and timely insights for the Australian government as it develops a national net zero plan, Carbon Market Institute chief executive John Connor said today.
“The new OECD working paper says governments have the ability to provide clear market signals to reduce uncertainties and support long-term planning for high-integrity carbon market activity,” Connor said.
“That is particularly relevant to Australia, given the government has acknowledged that ‘carbon crediting is necessarily a critical part of the net in net zero’ and acknowledged carbon markets as a cross cutting issue alongside sustainable finance, skills, and growing social equity through the transition” Connor noted.*
“Carbon markets and market-based solutions need to be a vital part of deploying the national net zero plan.”
“The new OECD paper offers a welcome deep dive into the different types of carbon markets, examining their effectiveness and integrity, and providing what it terms ‘guiding principles’ for governments,” Connor said.
It explores the interplay between voluntary carbon markets – in which companies and organisations use carbon credits without being obliged to do so – and compliance markets.
The paper points out that both kinds of markets are expected to grow, and notes that a number of countries plan to use carbon trading under the Paris Agreement Crediting Mechanisms (established under Article 6 of the Paris Agreement).
It adds that that the line between voluntary and compliance markets is sometimes blurred, and it examines the implications for environmental integrity as markets evolve.
The paper suggests that governments clarify:
- How the potential use of carbon credit markets fits with their international commitments to cut emissions.
- How carbon credit supply and demand can align with the pathway to net zero.
- Whether they intend to participate in the Paris Agreement Crediting Mechanism, and on what terms.
“The paper points out that for carbon credits to effectively support emissions reductions, carbon market frameworks need to be designed support long-term planning and investments,” Connor noted.
The Carbon Market Institute recently released a policy brief on the Australian government’s plans for a carbon market strategy, Connor said.
The CMI brief says a national carbon market strategy should deal with issues including the interaction with the new Nature Repair Market, and the role of government purchasing in both the carbon and nature markets.
“In addition, the strategy should explain how carbon markets will be used to enhance deep structural transition, and how the risk of the inappropriate use of carbon markets as a decarbonisation delay tactic will be mitigated,” Connor said.
“The Australian government is finalising six sectoral decarbonisation plans and a national net zero plan, has an integrated system plan for the National Electricity Market, and a Nature Positive plan,” Connor noted.
“A blueprint to guide the future of the nation’s carbon market is still to come, and is a critical missing link,” Connor said.
The OECD working paper is available here.
The CMI national carbon market strategy policy brief is available here.
*See for example, Minister Bowen speech to Sustainable Agriculture Summit May 2024.
About the Carbon Market Institute
The Carbon Market Institute (CMI) is a member-based institute accelerating the transition towards a negative emissions, nature positive world. It champions best practice in carbon markets and climate policy, and its around 150 members include primary producers, carbon project developers, Indigenous organisations, legal, technology and advisory services, insurers, banks, investors, corporate entities and emission intensive industries. The positions put forward constitute CMI’s independent view and do not purport to represent any CMI individual, member company, or industry sector.
