Independent Review of Australian Carbon Credit Units

Background

ACCUs are issued under the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act) and the Carbon Credits (Carbon Farming Initiative) Rule 2015. This legislation is governed and administered by the Minister for Climate Change and Energy, the Clean Energy Regulator (CER), and the Department of Climate Change, Energy, the Environment and Water (DCCEEW). The Emissions Reduction Assurance Committee (ERAC) is an independent statutory committee that assesses the integrity of methodology determinations made under the CFI Act.

In July 2022, the Albanese Government appointed an independent panel to review the integrity of ACCUs under the Emissions Reduction Fund and tasked it with releasing a report on its findings within six months. The panel members are Professor Ian Chubb AC (Chair), the Hon Dr Annabelle Bennett AC SC, Ms Ariadne Gorring and Dr Steve Hatfield-Dodds (the Panel).

The Independent Review was commissioned in response to claims that the level of abatement achieved by certain projects that operate in accordance with the Emissions Reduction Fund was overstated. The purpose of the Independent Review was to “advise on ways to strengthen the integrity of Australia’s carbon crediting framework as a means in contributing to Australia’s emissions reduction targets, and to ensure the scheme maintains a credible and strong reputation supported by participants, purchasers and the broader community”.³

The Panel examined the integrity of ACCUs issued under the CFI Act, and in particular the scheme’s governance structure, transparency, compliance of methodology determinations with the offsets integrity standards, and the effectiveness of method development and review processes.

The Panel also examined the broader impacts of activities incentivised under the CFI Act and the Emissions Reduction Fund. This included consideration of managing negative social, economic and environmental impacts on agricultural productivity and regional communities, whether carbon projects are supporting positive outcomes including for the participation of First Nations people and biodiversity, opportunities to maximise non-carbon benefits of projects, and requirements for the use of ACCUs under Climate Active.

The recommendations of the Independent Review

The Independent Review sets out the following 16 recommendations which are to be implemented as soon as possible.

The Report identifies the purpose of each recommendation as “to clarify intention where necessary; to clearly identify (and separate) the key roles of integrity assurance, regulation and administration; to remove unnecessary restrictions on data sharing; to enable free prior and informed consent; and to improve information and incentives, including in relation to non-carbon benefits and attributes”.4

Governance

Recommendations 1 to 3 (set out below) aim to clarify the governance of the CFI Act and Emissions Reduction Fund. Notably, the ERAC is to be replaced by a new Carbon Abatement Integrity Committee (CAIC), which will have an adjusted terms of reference and be supported by sufficient resources and an independent secretariat. The CER will no longer be responsible for purchasing ACCUs (to be carried out by another government department) or method development (to be led by proponents, with support from DCCEEW).

• Recommendation 1. The respective roles of scheme assurer, scheme regulator and related policy development should be clear, undertaken by visibly separate bodies, and each function resourced sufficiently to play its role effectively in administering the scheme and supporting well-functioning carbon offset markets.
• Recommendation 2. The ERAC be re-established as the Carbon Abatement Integrity Committee (the CAIC) as soon as practicable with adjusted terms of reference, membership and functions, and that it be well-resourced and supported by an independent secretariat.
• Recommendation 3: The CER be responsible for project monitoring, compliance and enforcement, and providing transparent project and scheme information.

Transparency

Recommendation 4 (set out below) addresses transparency, and recommends that the default position be that data is made public, unless non-disclosure is required to protect privacy or commercial-in-confidence information. It also recommends that the government explore using a national platform to share information and data.

• Recommendation 4: Provisions in the governing legislation should be amended to maximise transparency, data access and data sharing, while enabling protection of privacy and commercial-in-confidence information, to support greater public trust and confidence in scheme arrangements.

Method development and review

Recommendation 5 (set out below) addresses the method development and review process, and again recommends that proponents lead the development of methods for the purpose of promoting innovation, flexibility and the development of a broader portfolio of methods. It is recommended that an open expression of interest process replace the existing method prioritisation process, and that CAIC may set priorities for method endorsement and approval. 

• Recommendation 5. Establish a transparent proponent-led process for developing and modifying methods as soon as practicable, with the CAIC assuring the integrity of methods and DCCEEW providing support for participants who otherwise may not be able to participate.

Offsets integrity standards

Recommendations 6 and 7 (set out below) address the offsets integrity standards, with the Panel finding that the offsets integrity standards are inherently complex. The Independent Review recommends supporting the standards with “ACCU Scheme Principles”, and developing plain English definitions and clear and consistent interpretative material to reduce ambiguity.

It is recommended that the newness requirement at the project-level is amended to emphasise “new” abatement that may be credited after a project’s start date. At the method-level, additionality tests should be evidence-based and draw on common practice, and not require statements of intent or financial viability by the project proponent.

The report also considers implementing the mandatory cancellation of a percentage of ACCUs at the scheme-level, however indicates that this requires further consideration due to risk this will drive ACCU prices higher.

• Recommendation 6. The Offsets Integrity Standards should be clearly defined and supplemented with ACCU Scheme Principles to support their consistent application in method development and project implementation and administration.
• Recommendation 7. The Climate Change Authority should provide advice to the Minister on the merits of a mechanism at the scheme level to provide further assurance of additionality and conservativeness in a transparent manner.

Specific methods considered by the Panel

Recommendations 8 to 10 (set out below) address the human-induced regeneration (HIR), carbon capture and storage (CCS), avoided deforestation and landfill gas methods. The Independent Review found that the HIR method is sound, however that there is room for improvement. It is recommended that the CER publish outcomes of project assessments, consistent with relevant privacy and confidentiality provisions. The Independent Review found that the landfill gas method should require that the baselines of these projects be adjusted during the lifespan of the project (particularly if the crediting period is extended).

However, it was found that no new projects should be approved under the avoided deforestation method, on the basis that there would be serious questions around the additionality of any new project given the age of existing clearing permits.

The Independent Review did not make conclusive findings or recommendations on the CCS method, however noted its important potential contribution to mitigating climate change. The report notes that CCS activities are most likely to be undertaken at Safeguard Mechanism facilities. As part of the Safeguard Mechanism crediting reforms, the Albanese Government has proposed that new carbon abatement projects that reduce emissions at Safeguard facilities will only be able to generate Safeguard Mechanism Credits, and will not be able to generate ACCUs. In our experience, while CCS activities are often for the purpose of achieving abatement at Safeguard Mechanism facilities, the CCS activities themselves may not be part of a Safeguard Mechanism facility.

• Recommendation 8. Project administration for the HIR method should ensure that all HIR projects conform to its current intent: that it is reasonable to expect that the project area will become native forest, attain forest cover, and permanently store carbon as a direct result of project management actions.
• Recommendation 9. No new project registrations be allowed under the current avoided deforestation method. Consideration should 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 forests at risk of land-use conversion.
• Recommendation 10. Landfill gas methods and crediting period extensions should incorporate upward sloping baselines.

Broader impacts of carbon projects

Recommendations 11 to 15 (set out below) address the management of negative impacts, as well as the extent to which positive environmental, social and economic outcomes and other co-benefits are supported.

The Independent Review recommends that the Australian Government supports Native Title Representative Bodies and other relevant bodies to ensure consistent standards for the application of Free, Prior and Informed Consent (FPIC). The report found that “adherence to the principles of FPIC is essential to achieving positive outcomes and allowing conditional registration for carbon projects is inconsistent with FPIC”.⁵ If implemented, projects will no longer be able to be conditionally registered on the basis that consent is obtained in the future on Native Title lands.

The Independent Review recommends building on the Carbon Market Institute’s voluntary Carbon Industry Code of Conduct and creating mandatory performance standards for carbon service providers.

In general terms, the Panel considered that adverse impacts should be mitigated through the new governance and method development arrangements included in other recommendations. These should be supported by initiatives that aim to increase “trust, capability and coordination across the carbon farming supply chain”.6 The latter are particularly important for First Nations, rural and remote communities. The deep knowledge of First Nations Australians of local ecosystems and land management practices was recognised.

With regards to co-benefits, the Independent Review found that proponents should use appropriate methods to verify co-benefits, and provide evidence to the CER before claims regarding co-benefits are made. In this regard, transparency and verifiability are key.

• Recommendation 11. The CFI Act should be amended to remove the option to conditionally register ACCU projects on Native Title lands (as defined in the CFI Act) prior to obtaining consent, in alignment with the FPIC principles.
• Recommendation 12. Carbon service providers and carbon market advisors, including agents, should be accredited and regulated.
• Recommendation 13. The CER, in consultation with market participants and stakeholders, should develop procedures to support transparency of different project characteristics and types of co-benefits associated with ACCUs.
• Recommendation 14. The Australian Government should continue to support the capacity and capability of rural and remote communities, including First Nations Australians, to participate in and benefit from the ACCU scheme.
• Recommendation 15: Reforms relating to First Nations Australians’ participation in the ACCU scheme should align with the accepted recommendations of concurrent reviews and reforms.

Climate Active

Recommendation 16 (set out below) notes that the proposed introduction of a mandatory requirement to use a minimum of 20% ACCUs to achieve Climate Active carbon neutrality certification is inconsistent with the flexibility that is central to the intent and purpose of the Climate Active program, and may be cost-prohibitive.

• Recommendation 16. The mandatory requirement for Climate Active organisations to use a minimum 20 per cent ACCU to achieve their emissions offsets should not come into effect.

Independent Review expresses support for important role of ACCUs

The Independent Review expressed support for the important role of ACCUs in Australia’s pathway to net zero emissions by 2050. The report states that Australia’s carbon crediting framework as well as international carbon schemes are important in our efforts to decarbonise by incentivising projects that sequester greenhouse gases from the atmosphere, and aim to avoid emissions of greenhouse gases.⁷

The Independent Review emphasises that carbon offsets “are not alternatives”, rather they are “complementary elements of a strategy to moderate global warming” and essential to control global warming, given that not every emitter will be at net zero by 2050.⁸

Next steps

The Albanese Government has in principle accepted the 16 recommendations made in the Report to improve the scheme. We anticipate the government will now progress legislative amendments and policy development to implement the recommendations.

Of most immediate interest to market participants will be how the proponent-led methodology process will be developed, noting that when the CFI Act was initially implemented in 2011 this was the structure for methodology development.  Also worth noting is the proposed recommendation to remove the ability to obtain conditional project registrations and the stance likely to be taken by the CER during any transitional period before legislative change takes place.  Best practice would suggest that project proponents should now start factoring in obtaining consent of native title parties prior to project registration. 

How can we assist you?

For more information on the Independent Review or the 16 recommendations please contact a member of our climate change and sustainability team.