With increasing awareness and acknowledgement of climate change sustainability has become more prominent on the political agenda. In fact, ABC’s Vote Compass data revealed that climate change was by far, the most important issue to be addressed leading into this election. Ahead of the 2022 Federal Election, Australia’s emissions reduction plan has been criticised and placed under scrutiny by all sides of politics. A response to the demand for lowering emissions was the Australian Carbon Credit Units (ACCUs). But how effective have they been since their introduction almost 10 years ago? And with the upcoming election in mind, what might the future of them look like under the governance of a new government? Let’s start by having a look at what exactly ACCUs are.
What are ACCUS?
Australian Carbon Credit Units (ACCUs) are a financial incentive given to eligible entities including farmers, landholders, business, state government or local councils for Australian land-based actions that reduce or sequester carbon dioxide emissions, provided that they meet regulatory requirements. In other words, entities able to reduce their carbon emissions by investing in eligable emission abatement activities are awarded tradeable 'credits' that can be sold on secondary markets to help with the costs of adopting and running such projects. By running a project, you can earn ACCUs for emissions avoidance or storage of carbon dioxide in vegetation and soil. These projects may range from cattle and herd management, forestation projects, landfill management, to clean transportation and corporate renewable energy adoption. For every tonne of carbon reduced or stored through a project, participating organisations earn one ACCU. These credit units earnt can then be sold to the Clean Energy Regulator (under a carbon abatement contract) or on the secondary market.
ACCUs are administered by the Clean Energy Regulator (CER) where they are then sold to big emitters who are either liable under the 'safeguard mechanism' looking to keep their net emissions below an emissions limit (a baseline) by offsetting emissions with the ACCU, voluntary participants looking to improve their environmental behaviour or Commonwealth government contracts to buy ACCUs. To date the federal government has purchased over 90% of the ACCUs generated. The aim of ACCUs is to Provide incentives to undertake eligible offset projects that reduce emissions.
ACCUs were introduced following the 2013 election, which saw the Abbott government replace the Gillard government. They then became available to the market on July 1, 2014. Shortly after, the Abbott government abolished the Gillard’s “gross carbon price”, or “carbon tax”. Under Labour's carbon pricing, the country's biggest polluters paid for the amount of pollution they produce, pressuring them to reduce emissions.
Australia’s carbon market
Australia’s carbon market began ten years ago, in 2012, in response to the Paris Agreement which encouraged the use of carbon markets to exist in over 90 countries as a means of reducing emissions. Today, carbon farming in Australia is regulated by the Australian Government. The Clean Energy Regulator administers schemes legislated by the Australian Government for measuring, managing, reducing or offsetting Australia's carbon emissions, including the Emissions Reduction Fund (ERF) - Australia’s main climate change policy tool.
Through the ERF’s Safeguard Mechanism, Australia’s largest emitters known as ‘safeguard facilities’’ have obligations to measure, report and manage their greenhouse gas emissions. Typically, these facilities emitting more than 100,000 tonnes of carbon dioxide equivalent per year, purchase ACCUs from other businesses as a way of managing excess emissions and offsetting their own emissions profile, thus supporting the net-zero movement.
ACCUs are not identical to other state-based or nationally operating certificates such as Victorian Energy Efficiency Certificates (VEECs) or Large-scale Generation Certificates (LGCs). Each certificate or credit have different regulations and requirements and redeemable value that need to be considered when choosing which certificate will best support your own emissions reduction project.
The Paris Agreement, a legally binding treaty on climate change, is the overarching force to encourage further developments in environmental action, with national targets being reviewed every 5 years by international bodies. As outlined by the Carbon Market institute, the ambition in markets will have to increase, including the prices of ACCUs in the next few years to further increase demand. So how has Australia’s carbon market been performing?
The impacts of ACCUs
According to the ERF, there has been a total of 13.4 million carbon credits delivered to the Clean Energy Regulator in the last 12 months. This has resulted in $165 million in funds flowing to carbon projects in return. The Government’s $2.55 billion ERF has resulted in over 190 million tonnes of abatement. Additionally, minister for Energy and Emissions Reduction has reported that “the ERF is doing great work accelerating new projects to reduce emissions and deliver benefits across the Australian economy.” Furthermore, demand for ACCUs have continued to increase ever since their introduction in 2013 with state and territory government demand being largely driven by government expectations to offset emissions. Voluntary or corporate demand has also shown significant growth and interest. So, Australia is believed to be playing its part in reducing emissions. But what are some of the criticisms?
Figure 1. Number of ACCUs issued per year (adapted from Australian Government: Clean Energy Regulator)
Criticisms of ACCUs
ACCUs are regulated separately to other state-based certificates such as Victorian Energy Savings Certificates (VEECS) and Energy Savings Certificates (NSW). However, these markets are modified through government regulation. This means there is a high risk, and when arbitrary decision-making comes into play, the market may become extremely volatile. This was demonstrated when carbon credit prices fell by more than 30 per cent earlier this year after a federal government policy change. This change, allowed holders of carbon abatement contracts to discontinue their contracts and therefore sell their ACCUs, in order to create more voluntary (local corporate) demand.
Figure 2. ACCU spot prices. Source: Jarden
Additionally, the Labour government has labelled Australia’s carbon credit system a “sham that is wasting money”, believing that the government could save billions of dollars with other policies in place. There is also the belief that most of the carbon offsets issued under the scheme are not backed by genuine reductions in emissions, and because of this, they are actually causing more harm to the environment. Many have also called out the emissions cap of 100,000 tonnes of CO2 or equivalent per year to be too generous and needing to be lowered in order to reduce carbon emissions at a rate necessary to curb climate change.
The future of ACCUs
The Coalition stands by achieving net zero by 2050, “focused on technologies and not taxes”. This decade, the Government plans to invest more than $22 billion in low emissions technologies, driving over $88 billion of total investment to reduce emissions while growing the economy and creating jobs across Australia. If Liberals were to be reelected over the next election, it is likely that we will continue to see growth and further development of Australia's carbon market in line with their Direct Action Plan.
In contrast, it seems that The Labour Party's new efforts for reducing overall emissions will include pollution limits and penalties for those exceeding threshold limits. Labour have said they would commission a review of the Emissions Reduction Fund, however, it is not entirely clear how they aim to amend the current carbon pricing mechanism. The Australian Greens Leader Adam Bandt has said he would refer the ERF to the federal Auditor General for investigation, in light of the issues raised by professor Macintosh, as well as other claims of potential conflicts of interest amongst the current members of the Emissions Reduction Assurance Committee.
In part because of those comments on policy from each of the major political parties, the ACCU market has seen a lot of volatility since the announcement of an election and is likely to see some volatility in the future until any changes in policy are confirmed. As the climate war continues to heat up, the good news is that both parties have recognised climate change as a real issue and are committed to meet international regulations to help curb the growing environmental crisis.
Figure 3. Comparison of major parties’ actions for ACCUs and net-zero targets. Source: ABC News
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References
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Clean Energy Regulator. 2020. Australian Carbon Credit Units. [Online]. Available at: http://www.cleanenergyregulator.gov.au/OSR/ANREU/types-of-emissions-units/australian-carbon-credit-units
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