Shake-Up Of The Australian Carbon Market

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Over the coming weeks and months, the Australian Parliament will debate proposed reforms to important aspects of the country's emissions reduction plans. If enacted, the reforms will...
Australia Environment
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Accelerating Emissions Reductions

Over the coming weeks and months, the Australian Parliament will debate proposed reforms to important aspects of the country's emissions reduction plans. If enacted, the reforms will have significant impact on emissions-intensive businesses operating in Australia, as well as serious ramifications for the broader domestic carbon market.

Australia's current emissions cap regime applies to all industrial facilities in the country which emit more than 100,000 tonnes of carbon dioxide equivalent (CO2-e) in a year (i.e., approximately 215 'Safeguard' facilities). This regime imposes a 'baseline' limit of the amount of Scope 1 emissions that a Safeguard facility is permitted to emit over the course of a year.

Under the proposed reforms outlined in the government's Position Paper, and which are slated to take effect from July 1, 2023:

  • The baseline limits for relevant Safeguard facilities would be steadily reduced at an annual decline rate of 4.9% until 2030 to enhance the prospect of Australia meeting, or exceeding, its recently legislated emissions reduction targets of a minimum of 43% by 2030 (over 2005 levels) and net zero by 2050;
  • Safeguard crediting and trading would be introduced, permitting Safeguard facilities to earn tradeable credits known as 'Safeguard Mechanism Credits' ("SMCs") for any emissions that are below their baseline. SMCs will be able to be traded with other Safeguard facilities that require credits to meet their emissions cap;
  • To avoid double counting, Safeguard facilities will no longer generate Australian Carbon Credit Units ("ACCUs"); and
  • A proposed price cap of $75 per tonne of CO2-e will apply in 2023/2024, increasing with CPI plus 2% each year, to prevent excessive price volatility.

Chubb Review into the Integrity of ACCUs

Concurrent with the above reform agenda, the Australian government has also committed to implement in consultation with stakeholders, some 16 recommendations made in the Final Report prepared by an independent review panel concerning the integrity and governance of the ACCU scheme, which was released in early 2023.

The review panel, chaired by former Chief Scientist, Professor Ian Chubb AC, found that the ACCU framework is essentially sound. Further, contrary to whistle-blower reports which prompted the review, the level of carbon abatement under the 2011 scheme was found not to have been overstated.

The panel's recommendations include:

  • The adoption of a proponent-led approach to developing the emission reduction methods by which ACCUs are generated under the offsets integrity standards so as to incentivise and promote innovation;
  • The re-establishment of the Emissions Reduction Assurance Committee ("ERAC"), to be known as the Carbon Abatement Integrity Committee ("CAIC"), to provide independent assurance of the integrity of emission reduction methods;
  • Support for the deployment of carbon capture and storage ("CCS") as an allowable emissions reduction method;
  • Continued support for human induced regeneration ("HIR") as a method for ACCU creation but with more rigorous demonstration and evidence that the nominated activity is achieving the anticipated outcome;
  • A proposal that no new project registrations be allowed under the current 'avoided deforestation' method for creating ACCUs;
  • A narrower, more streamlined, role for the Clean Energy Regulator ("CER") to improve transparency and avoid actual or perceived conflicts of interest;
  • The introduction of mandatory performance standards and accreditation for carbon service providers and carbon markets advisors to enhance consumer protection and market confidence.

This is a very dynamic space that all Australian businesses ought to monitor carefully—as much for the commercial opportunities that the domestic carbon market presents, as well as the significant impact that the proposed reforms may have on the growth and trajectory of emissions-intensive businesses.

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.

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