03 Aug 2022 | 10:44 UTC

Australia's carbon market review crucial to addressing fundamental integrity concerns: experts

Highlights

Previous govt focused more on boosting supply instead of integrity

Planned integrity checks of carbon trading system failed

Review of certain projects like landfill gas, reforestation necessary

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Australia's ongoing review of its carbon trading system is crucial to addressing fundamental concerns over the market's integrity and essential to rebuilding confidence among investors, experts said Aug. 3 at an industry forum hosted by the trade body Carbon Market Institute.

In July, the newly elected Labor-led government's Climate Change and Energy Minister Chris Bowen announced the appointment of an independent panel to review the Australian Carbon Credit Unit system.

"This [carbon market] is a policy-driven market," John Connor, CEO of CMI, said at the forum. "Over the last 20-30 years, it had to try and emerge in an intense, partisan political environment, which means we haven't got the most optimal market structures and frameworks that we might want, or that economists would ask for."

When former Australian environment minister Greg Hunt set up the ACCU system, one of his commitments was that every method for creating carbon credits would be reviewed every three years as an integrity check, Alison Reeve, Climate Change and Energy Deputy Program Director with Australian think tank Grattan Institute, said.

"That happened for a little while, and then it stopped happening," Reeve said.

She said the previous government had put more resources into developing new methods and issuing more carbon credits, instead of checking whether all methods had met integrity standards. Having lots of credits with low quality does not help achieve decarbonization objectives, Reeve said.

ACCUs are generated from a variety of decarbonization activities, based on a continuously expanding pool of methods. ACCUs can be generated from afforestation and reforestation projects, industrial and agricultural enhancement, carbon capture and storage, as well as waste treatment, such as installing facilities to collect and utilize landfill gas.

Landfill gas, reforestation projects in focus

The review panel is expected to address recent concerns around the ACCU system and examine the integrity of key methods currently in use.

Landfill gas and reforestation projects require particular attention in this review, Murray Griffin, editor with Footprint News, said at the forum.

Griffin said the landfill gas method has been heavily used by the waste industry and some projects generate carbon credits for much longer than any other type of projects. "I do think it's timely for an independent group to come in, take a look and see whether those terms are still valid," he said.

He said criticisms around the Human-Induced Regeneration method also need to be addressed. This method allows landholders to claim ACCUs from the regeneration of native forests.

Earlier this year, a research team led by Andrew Macintosh and Don Butler, professors with the Australian National University, published a study criticizing the HIR method for questionable thresholds of project eligibility and severe over-estimation of emission abatements.

"That's such a large sector. It's responsible for so many ACCUs. The concerns have been at such a fundamental level. They have to be investigated," Griffin said.

The ANU study showed, as of November 2021, HIR projects accounted for 32% of all registered projects, 27% of all issued ACCUs, and more than 50% of all ACCUs contracted through the government purchasing scheme.

The majority of ACCUs are purchased by the federal government under the Emission Reduction Fund scheme, while spot market demand from commercial buyers has also risen in the past year.

Rebuilding market confidence

The review is also key to restoring investor confidence in the Australian carbon market.

The Australian government requires companies with emission-intensive industrial facilities to buy ACCUs to meet their emissions targets.

Reeve said that without integrity, a lot of private capital invested in purchasing ACCUs will be wasted, and voluntary buyers are concerned they are only paying for compliance without genuinely achieving any decarbonization objectives.

Bianca Sylvester, director with Australia's government-owned bank Clean Energy Finance Corporation, said that while the carbon market and climate finance need to scale up, it is absolutely critical to achieve this "in a high integrity way."

She said public debate and public opinion are needed to drive enhancement of carbon market practices, and push carbon "as an asset class to really mature."