Australia: National Carbon Offset Standard

In December 2008 the Department of Climate Change released a National Carbon Offset Discussion Paper (Discussion Paper) together with a draft National Carbon Offset Standard (Standard). The purpose of the Standard is to provide a nationally consistent 'benchmark' for the regulation of voluntary carbon offsets, and to enhance consumer confidence in the voluntary carbon market by providing guidance on what constitutes a genuine carbon offset. The Standard is concerned with voluntary activity that occurs beyond that imposed by the Federal Government's proposed Carbon Pollution Reduction Scheme (CPRS).

The CPRS is likely to have significant implications for the voluntary carbon market. The White Paper and draft legislation (see our previous legal updates) proposes that the CPRS will have very broad sectoral coverage and only those sectors not covered by the scheme should be able to create offsets. This means that there is inherently less scope to pursue domestic offset activities that relate to voluntary activity outside the scheme, especially if a final decision is made in 2013 to include agriculture within the scheme from 2015.

The Discussion Paper and Standard builds on the government's election commitment to set up a national standard for carbon offsets which will:

• build on existing schemes to minimise duplication
• provide national consistency
• include minimum standards of offsets
• require ongoing management where necessary to ensure integrity
• require credits to be cancelled when used to provide an offset
• require all products on the market to be accredited
• include appropriate verification and validation protocols
• take international developments into consideration, and
• include standard carbon neutral calculations.

Potential credible offsets under the Standard for Australian entities include:

• Voluntary surrender of Carbon Pollution Reduction Permits issued under the CPRS;
• Kyoto Units;
• Non-regulated international offsets;
• Domestic credits from uncovered sources.

Voluntary Surrender Of Carbon Pollution Reduction Permits Under The CPRS

A Carbon Pollution Reduction Permit (CPR Permit) (called Australian emissions unit under the draft CPRS Bill) issued under the CRPS can be held by any person regardless of whether they have any legal obligations under the Scheme and can therefore be purchased and surrendered voluntarily. The White Paper states that the Government will not impose any quantitative restriction on voluntary surrender of units at this time.

Kyoto Units

In addition to CPR Permits, the following Kyoto units will be accepted for compliance with the Scheme.

• certified emissions reductions (CERs) except long term (ICERs) and temporary (TCERs) from under the Clean Development Mechanism (CDM);
• emissions reductions units (ERUs) under Joint Implementation (JI); and
• removal of units (RMUs) re land use, land use change and forestry activities.

It is proposed that the same Kyoto units would be eligible offsets under the Standard. Where a Kyoto unit is surrendered voluntarily in the national registry the Government will cancel a CPR Permit and where a CPR Permit is surrendered the Government will cancel a Kyoto unit.

Non-Regulated International Offsets

The White Paper concludes that international units other than Kyoto units will not be accepted into the Scheme but that this could be reviewed in the post 2012-13 period. Similarly the Standard limits the range of voluntary offsets to Kyoto units however other types of carbon credits could be considered for eligibility if they become recognised as part of international frameworks. Possibly eligible voluntary carbon offset standards include Gold Standard, Voluntary Carbon Standard and VER+.

Domestic Offsets – Uncovered Sources

Domestic offsets units may potentially be generated from sources not covered under the CPRS or required by local or state regulations, if they meet the following offset eligibility criteria:

• additional – abatement generated must be beyond what would be undertaken as part of business-as-usual investment or what is required by regulation. The Standard notes that the Greenhouse Friendly Guidelines provide further guidance on this requirement;
• permanent – in relation to sinks, this requires that carbon stored is sequestered and not released into the atmosphere in the future;
• measurable – methodologies used to quantify the amount of abatement must be robust;
• transparent – consumers must be able to access information on a publicly available website;
• independently verified – eligibility of the abatement project and subsequent abatement must be validated by a non-interested third party;
• registered and tracked in a publicly transparent registry (to ensure no double-counting).

The Discussion Paper notes that the Greenhouse Friendly procedures and approach, based on those of the CDM, may be appropriate to adopt for the assessment of new methodology for the generation of domestic offsets. The government is currently considering the implications of the CPRS for the Greenhouse Friendly program and will advise on how it will address them in early 2009.

Carbon Footprint Calculation

The Standard also sets out principles, definitions and methodology for the calculation of the carbon footprint of an organisation and a product of service and suggests that a less comprehensive form of life cycle analysis that makes calculation of scope three emissions optional may be reasonable given the complexity involved. The Discussion Paper also grapples with the term and calculation of "carbon neutrality" versus the concept of "additional voluntary action" in the context of the CPRS. Audit provisions for the CPRS and the NGER Act are under development and should be used as a guide. However, until that time, verification should be undertaken in accordance with AS ISO 14064 series.

The Discussion Paper and Standard complements the ACCC's publication "Carbon claims in the Trade Practices Act" and provides examples of acceptable public statements which organisations that offset emissions in accordance with the Statement are entitled to make, though it is not proposed to have a quality mark or a logo associated with these claims. The Standard also provides for public reporting requirements to substantiate any claims made about offsetting carbon emissions in accordance with the Standard, and provides that compliance with the Standard will be assessed by the ACCC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.