Australia voluntary carbon scheme pushes for more emission cuts, costlier offsets

Australia's voluntary carbon offset certification scheme aiming to implement tougher targets for its members is expected to align it with global standards, likely pushing members toward using higher integrity international and local Australian credits, market participants said.

The government-backed scheme, called Climate Active, launched a consultation in October to update the program in line with the changing international voluntary carbon market landscape.

Under the consultation, CA proposes to require its members to set up a near-term and long-term gross emissions reduction target between 2025 and 2035 and between 2040 and 2050, respectively, aligned with Australia's Nationally Determined Contribution, or NDC.

To maintain their certifications, the nearly 700 businesses and organizations currently part of the scheme will also need to demonstrate that they remain on track to achieve their targets averaging over a three-year period.

"In some ways it is almost Climate Active catching up," said Peter Holt, partner, energy and climate advisory, Deloitte, adding that the consultation was in concert with global programs such as the Science Based Targets initiative, or SBTI, and the Oxford Offsetting Principles.

Market experts said some of the members, including small businesses, may struggle to meet the proposed standard.

"There are still lots of companies out there who haven't set science-based targets, and even fewer who have robust decarbonization plans to support their SBTs," said Charlie Knaggs, partner, decarbonization at ERM, a London-based consultancy.

Most of the organizations are service providers with limited opportunities for long-term reductions, and this will likely lead them to either exit the scheme or force greater change down scope 3 supply chains, said Guy Dickinson, CEO of Clima, an Australia-based carbon services provider.

Offsets

The scheme currently allows organization to offset their emissions through certain international and local but more expensive Australian carbon credit units, or ACCUs.

While current settings allow for any vintage year later than 2012, the consultation proposes to implement a five-year rolling vintage rule for all international credits.

"I don't think there is any huge resistance to it," a carbon trader said, adding that the rule might impact clients who have bought forward credits of two-three years and have a contract starting 2016-2017.

The mandate may push some companies to buy higher integrity carbon credits, but experts don't expect a strong move toward relatively expensive ACCUs.

"Proposed changes to the CA scheme could accelerate this preexisting trend and could further increase demand for certain ACCU types considered to be of higher quality. These include environmental planting and savannah burning projects," said Thomas Hodgson, director, industrial solutions, Ndevr Environmental, a Melbourne-based carbon advisory firm.

International credits accounted for 95% of offsets used under Climate Active, according to a report by Australia's Climate Change Authority published in August 2022.

Through 2019 to August 2022, ACCUs accounted for 8% of the 12.8 million offsets contributing to Climate Active certifications, compared with 49% for Verified Carbon Units issued by the Verified Carbon Standard, 39% for Certified Emissions Reductions generated from Clean Development Mechanism projects and 4% for Verified Emissions Reductions issued by the Gold Standard, according to the report.

Platts, part of S&P Global Commodity Insights, assessed the price of Generic ACCUs at A$31.50/mtCO2e and Human Induced Regeneration ACCUs at A$34.55/mtCO2e on Dec. 1.

The price of Savanna Fire Management indigenous and non-indigenous ACCUs were assessed respectively at A$50.50/mtCO2e and A$39/mtCO2e, with Environmental Plantings assessed at A$57.50/mtCO2e.

On the other hand, the price of nature-based avoidance carbon credits was assessed at $4/mtCO2e on Dec. 1.

"At the end of the day, however, a $4 Indian wind farm vintage 2015 going to a $7 Indian solar vintage 2018 is not even close to pushing people into a A$30 plus unit," Dickinson said.

The consultation also proposes to require members to source a minimum percentage of renewable electricity from the market either directly through the grid or by buying certificates.

Additionality

The consultation also proposes to count abatement from all ACCUs used in the scheme toward meeting Australia's emissions reduction target under the Paris Agreement.

"The targets in the NDC are a floor, not a ceiling, on Australia's emissions reductions and increased voluntary action will not reduce the ambition of the government's climate change policies," according to the consultation document.

Certain participants think that the government should be implementing policies to achieve the NDCs, and the voluntary actions are over and above those and hence shouldn't be counted toward such targets, a carbon market expert said.

"I'm not supportive of this change," Knaggs said. Businesses that get involved in the scheme want to see more action on climate change and do not want to subsidize the government's efforts from achieving its international commitments, he said.