New Australia government must overhaul carbon market governance: trade body

Australia's new government should look at overhauling several aspects of the country's exiting carbon market including a revamp of governance policies and mechanisms to restore investor confidence, Carbon Market Institute, a trade body, said in a post-election report on May 31.

"Recent experience in Australia has highlighted the need for review and improvements to carbon market governance, including greater transparency," CMI said.

"Arbitrary and poorly consulted decisions -- namely, those regarding granting additional ministerial veto powers for certain carbon farming methods and the release of fixed carbon abatement contracts -- have had a demonstrable impact on investment and ACCU prices," it said.

CMI said the selection processes for carbon offsetting methodologies were also opaque and not explicitly linked to abatement potential, and concerns have been raised about the additionality of key methods and certain projects, as well as the robustness of current checks and balances.

"Without commenting on any individuals or their performance, these concerns are not helped by opaque appointment processes and consequent perceptions of bias in the decision-making processes and institutions underpinning Australia's carbon markets," the trade body said.

CMI said it supported the new government's promise for a review of the current carbon offset scheme and a revamped role for the Climate Change Authority, along with a new national independent Environment Protection Agency.

It said it would work with the new government to renovate Australia's carbon market, implement improved governance measures, and participate in a review into ACCUs, which have been the subject of widespread criticism in recent months.

Develop global agencies

CMI said Australia's new government should take "a leading role in the development of high integrity global carbon market supervisory agencies and rules" established after COP26 agreements and deepen "the Indo-Pacific Carbon Offsets Scheme (IPCOS) initiated by the previous government."

It said Australia must support countries in the region "to develop high integrity, locally driven carbon crediting arrangements."

The Indo-Pacific Carbon Offsets Scheme was set up by Australia to develop a carbon market for offset trading in the region, including countries like Fiji and Papua New Guinea, and set to initially run for 10 years until 2031.

CMI said the new government should also work to enable the international trade of Australian Carbon Credit Units in global carbon markets, and boost supply-side carbon market integrity by supporting the development of voluntary offsets that do not directly assist national emissions goals.

Strengthen safeguard mechanism

Under Australia's current Safeguard Mechanism, facilities with annual direct emissions over 100,000 mtCO2e, excluding the electricity sector, are subject to emissions reductions.

These facilities operate in metals, mining, oil and gas extraction, manufacturing, transport and waste industries, and are responsible for almost a third of Australia's emissions -- 28% of national emissions in 2020-21, or 137 million mt of CO2e, CMI said.

It said their share will grow as the electricity sector continues to decarbonize with the accelerating uptake of renewable energy, because of which the mechanism needs to be evolved for stronger emissions reduction.

A more stringent Safeguard Mechanism should include lowering the threshold for emissions cuts and "expanding coverage, either immediately or by a specified date in the near future, to facilities emitting over 25,000 mtCO2e/yr," which is significantly lower than the current threshold of 100,000 mtCO2e/year.

In comparison, the threshold is 26,000 mtCO2e/year in China and 25,000 mtCO2e/year in South Korea for individual facilities, official data showed.

The tighter emissions rules must also be extended to the electricity sector, "considering the leniency of its sector-wide baseline under which headroom is increasing as more renewables come into the mix," CMI said.