Opportunity opens to submit method proposals for ACCU Scheme

Background to this initiative: The Chubb Review

Based on concerns expressed about the operation of the ACCU Scheme, in July 2022, the Australian Government appointed an independent panel, led by Professor Ian Chubb, to review the scheme (Review).

The results of the Review were published in January 2023 and, whilst it concluded that the “the scheme was fundamentally well-designed when introduced”, it acknowledged that it could be improved. The Review made 16 recommendations, which were subsequently adopted by the Australian Government.¹

One of these recommendations was that the government should:

Establish a transparent proponent-led process for developing and modifying methods as soon as practicable, with the [Carbon Assurance and Integrity Committee] assuring the integrity of methods and the Department providing support for participants who otherwise may not be able to participate.²

It was argued by the Review that allowing proponent-led methodologies would “promote innovation by giving proponents the flexibility to develop or adapt new approaches to carbon abatement” and would also address concerns that the process of method development lacked transparency and was not accessible to all groups.³

Expressions of interest approach for proponent-led methods

This recommendation has now been implemented through an ‘expression of interest’ (EOI) model, by which anyone can submit an ACCU scheme method proposal, which will be assessed by the Emissions Reduction Assurance Committee (ERAC). This process will take place according to the following five steps:

1. Registering a new method idea:

Anyone is invited to register an idea for a new method or a variation to an existing one. To do so, the relevant template form and survey on the DCCEEW page linked here must be completed. You will need to, at a minimum, provide a description of how your proposal would avoid or sequester greenhouse gas emissions.

A “Method Development Tracker” will be maintained by the ERAC Secretariat to track the ideas that are submitted. DCCEEW recommends that you check the Method Development Tracker before registering your idea, to reduce the likelihood of suggesting one that has already been proposed by someone else.⁴ If ERAC receives similar EOIs (see next stage), it may ask you to re-submit a joint EOI.

2. Submitting an EOI for a new method or method variation:

Next, you will need to submit an EOI with more information about your idea, including the activities it will involve and how it will align with the Offsets Integrity Standards (OIS) (these are legislated standards to ensure that ACCUs represent real and genuine abatement).⁵

ERAC will undertake a two-stage assessment of the submitted EOIs, as follows:

• a primary triage, which will consider: (i) the potential scale of carbon abatement; and (ii) the complexity of the proposed method; and
• a secondary triage, which will assess if proposals will: (i) generate social, environmental, economic, or cultural co benefits, including for First Nations peoples; (ii) incentivise innovation; and (iii) entail adverse environmental, economic, social and/or cultural impacts, (and the extent to which these can be managed).

Further details, including the information that ERAC will take into account when assessing each of these factors, can be found in its guide for submitting an EOI.⁶ Of note, this assessment will also guide the decision as to whether an EOI will be prioritised for development by the Minister for Climate Change and Energy (Minister).

ERAC will publish its assessment of each EOI in the Method Development Tracker, and will provide feedback on both successful and unsuccessful EOIs.

The deadline for submitting an EOI is 12 July 2024.

3. Developing the method proposal or method variation proposal:

If you reach the next stage, ERAC will assist you in converting your proposal into a legal instrument whilst also undertaking the following next steps:

• consulting stakeholders;
• collating evidence to support the method’s abatement activities and calculations;
• drafting abatement calculations for your method activities;
• developing tools or supporting software to support the implementation of your method; and
• drafting a simple method guide to support users of your method, if made.

Throughout this stage, ERAC will continue to assess your proposal against the OIS.

4. Public consultation on the draft method or draft method variation:

Before being recommended to the Minister for approval, your method must undergo a public consultation.

5. Finalising the method:

Once the public consultation is complete, you must address any consultation feedback. Following this, ERAC will again review your proposed method against the OIS and will advise the Minister as to whether it should be approved.

If ERAC considers that your method still does not meet the OIS, you may continue to refine it, and then resubmit it on a later date. Alternatively, if it is recommended by ERAC and then approved by the Minister, it will eventually be included on the Federal Register of Legislation for you and other project proponents to use.

Implications for the supply of ACCUs

The introduction of this initiative is well-timed, owing to concerns about both the sunsetting of current ACCU methods and delays to the adoption of new ones.

ACCU methods are critical to project development, as they underpin the ability to register a project under the ACCU Scheme and thereby facilitate the generation of ACCUs. Many projects have significant lead times, first to achieve project registration and secondly, to commence credit issuance. Accordingly, restrictions on the availability of method options are ultimately likely to impact on the supply of ACCUs.

Expiry of current methods:

As legislative instruments, ACCU methods have automatic sunset (expiry) dates (usually 10 years following the date on which they were registered).⁷ However, if a project is registered under a method and commences its crediting period prior to the method’s sunset date, it may continue to use the method for the remainder of its crediting period.

Crucially, several methods are due to sunset in the near future: 3 by the end of the year (including the popular “Reforestation by Environmental or Mallee Plantings” method (EP Method)), and a further 15 methods within the next 18 months.

The table below lists the sunset dates of each of the current ACCU methods (those which will sunset within the next 18 months are coloured in light red).

Delays to new or varied methods:

DCCEEW has been working for some time on the development of several new methods, or variations to existing methods. Critically, one such method is the Integrated Farm and Land Management method (IFLM Method). This is seen as the successor to the Human-Induced Regeneration method, which, to date, has had the highest take up of all project types under the ACCU Scheme.

The development of this method was reportedly paused in March 2024 owing to difficulties in demonstrating some of the method’s environmental benefits, and DCCEEW has since confirmed that it does not expect to provide a draft method to ERAC until “the second half of 2024”.⁸

As a consequence of the delay to the introduction of the IFLM Method (which was originally intended to incorporate the EP Method), the government has committed to re-making the EP Method to ensure that environmental plantings projects can continue to be registered once the current method sunsets.

Other existing methods which are currently being reviewed include the Landfill Gas method and the Savannah Burning method. In relation to the Landfill Gas method, Professor Chubb’s Review recommended that this method be updated to incorporate an upward sloping baseline.⁹ This and other reforms to the method are now the subject of a ‘reform options paper’, which is open for submissions until 31 May 2024.¹⁰

Increasing demand for ACCUs

It is also important to consider the implications of ACCU supply in the context of the demand variables. The most significant to emerge is the conversion of the Safeguard Mechanism into a compliance scheme. Safeguard facilities are able to surrender ACCUs to comply with their emissions baselines, and it is expected that greater demand will emerge over time as these baselines continue to decline. The current expectation is that Safeguard Mechanism entities will need to collectively reduce their emissions by 200 million tonnes of CO2-e by 2030. For those who cannot reduce emissions within their operations, the use of ACCUs will be an essential compliance tool.

To reinforce the need for Safeguard Mechanism facilities to consider their future purchasing requirements, the Chair of the Clean Energy Regulator (CER) recently wrote to all Safeguard Mechanism entities and stated:

As baselines tighten, it is expected that demand for both ACCUs and [Safeguard Mechanism Credits (SMCs)] will increase and, consequently, it is possible that the market will tighten. Those organisations that have acted early to implement on-site emissions reduction activities, where available, and secure supply of ACCUs or SMCs to meet residual obligations, will be well positioned to manage their obligations.

The letter continued:

Over the last year we have observed a substantial increase in the ACCU holdings by organisations likely to have a Safeguard obligation and the spot price of ACCUs stabilising between $30 - 35. However, I understand that many organisations are still formulating their compliance strategies, and so are yet to enter the carbon market to hedge against potential future ACCU need. This underpins a market view that the ACCU price is likely to rise over time. You may wish to act early to secure supply of ACCUs. Organisations that wait until closer to the compliance deadline will potentially find it more difficult to secure the required ACCUs at a competitive price.

The CER will maintain a reserve of ACCUs accessible for purchase by Safeguard entities at an initial fixed price of $75 per ACCU, however it is worth noting that this reserve of ACCUs currently only holds 1.9 million ACCUs. Over time, the CER expects to supplement this through ACCUs delivered under Carbon Abatement Contracts.

Conclusion and how we can assist you

The commencement of the EOI process for new method proposals is well-timed, given delays to the development of other methods currently being undertaken by DCCEEW. Depending upon take-up of the opportunity and the speed with which private sector methods can be pursued, it is hoped that new ACCU volume will be stimulated in the latter part of the years leading up to 2030.

If you would like further information about how you can submit an EOI before the 12 July 2024 deadline, or would like to receive advice about the ACCU Scheme more broadly, please contact a member of our climate change practice.