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How to strengthen the integrity of Australian carbon credit units: Recommendations from the Chubb Review

By Elizabeth Harvey / 23 February 2023
7 min.
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Worthwhile read for: Land managers, carbon farmers, carbon project developers, agribusiness advisers

Carbon offsets have at times attracted controversy, with criticism about the credibility of certain carbon credits. As recent examples, the ABC’s Four Corners program has raised integrity concerns about logging in rainforests protected by carbon credit schemes, and an investigation by The Guardian, the German weekly Die Zeit and SourceMaterial, a non-profit investigative journalism organisation claimed that 90% of rainforest carbon offsets certified by Verra are worthless. In Australia questions have also been raised about whether Australian carbon credit units (ACCUs) generated from certain projects represent genuine additional abatement. These criticisms emphasise the fundamental importance of ensuring that carbon offset schemes do deliver real reductions in greenhouse gas emissions. 

In response to such concerns, and recognising the importance of ACCUs in reaching Australia’s emissions reduction targets, the Commonwealth Government appointed an independent panel, led by Professor Ian Chubb, to review the integrity of the ACCU scheme (Chubb Review) in July 2022. 

The Panel has now released its Independent Review, which concludes that the ACCU scheme arrangements are essentially sound and the scheme was fundamentally well-designed when it was introduced.  

The Panel made clear that it did not share the view of critics that the level of abatement had been overstated, suggesting that this view may be caused by a lack of transparency and data sharing. 

The Panel has also found after 11 years of operation that improvements are available, making a number of recommendations to the scheme. The Commonwealth Government has accepted, in principle, all the recommended changes from the Chubb Review. 

What are the recommended reforms?  

The Panel has put forward a number of recommended reforms to the scheme covering topics such as scheme governance, integrity, transparency, data access and data sharing, and First Nations involvement.

Scheme governance

Scheme governance was a key area in the Panel’s terms of reference. Currently the Clean Energy Regulator (CER) plays multiple roles: certifying eligible offsets projects; issuing ACCUs; developing project methods; and entering into carbon abatement contracts to purchase ACCUs on behalf of the Commonwealth Government. The independent statutory method assurer, the Emissions Reduction Assurance Committee (ERAC), was moved to the CER in 2020, which the Panel suggests means the ERAC is not widely seen as an independent expert committee.   

The Panel has recommended that there be visibly separate bodies for the roles of scheme assurer, scheme regulator and policy development. These recommendations include:  

  • The CER be responsible for project monitoring, compliance and enforcement, and should provide more public information about projects and scheme information.
  • Responsibility for the Australian Government entity purchasing ACCUs to be moved to another entity.  
  • The ERAC be re-established as the Carbon Abatement Integrity Committee (CAIC). After six months of operation of the CAIC, the Climate Change Authority should assess whether the CAIC should remain a statutory advisory committee under the Carbon Credits (Carbon Farming Initiative) Act 2001 (CFI Act), or be elevated to an independent statutory authority. 

Integrity questions around key methods

The Panel was asked to consider claims raised about the most common Emissions Reduction Fund (ERF) methods: Human-induced regeneration (HIR), avoided deforestation and landfill gas.  

Human-induced regeneration 

The HIR method requires changing practices (e.g., grazing and livestock management) that have prevented the regeneration of areas that have previously sustained native forest. In response to criticism that ACCUs have been issued under the HIR method for vegetation change brought on by rainfall following drought, rather than the relevant HIR project activities, the Panel recommended that:

  • the method should be interpreted as requiring evidence of a causal relationship between the nominated HIR activity and the previous management practices that suppressed development of forest cover, and demonstration that these suppressors are directly addressed by the HIR activity throughout the life of the project;
  • each project must satisfy these criteria before ACCUs may be issued; and 
  • to increase transparency, the CER should include the nominated suppression mechanism and eligible HIR activities for new and existing projects on the project register. 

Avoided deforestation  

The additionality of carbon abatement from avoided deforestation projects has attracted criticism, with questions about whether landholders would have actually cleared their project land (despite holding the legal right to do so), given the expense of clearing land in low productivity areas. Many avoided deforestation projects are located in the region around Cobar and Burke, in part due to the number of partial clearing permits that had previously been given out by the NSW Government, prior to the introduction of the CFI Act. 

The Panel now recommends that no new project registrations be allowed under the current method. Addressing these additionality concerns, the Panel notes that the length of time that has elapsed since the issue of any remaining unused land clearing permits implies that it would be hard to establish intent to clear land, such that any abatement from avoided clearing would not be additional. 

Landfill gas  

Landfill gas projects seek to capture the methane generated when organic material in landfill decomposes, instead of this being released into the atmosphere. Eligibility for ACCUs is calculated based on landfill gas baselines, reflecting additional abatement above legislative requirements. The Panel has recommended that the landfill gas methods and crediting period extensions should incorporate upward sloping baselines, increasing the threshold from which abatement becomes additional. This is to ensure the baselines reflect state and territory regulatory requirements, and increase as expectations and regulatory standards increase over time.  

Method development

The Panel recommends establishing a transparent proponent-led process for method development, through an open expression of interest process, with the CAIC involved in setting priorities for method endorsement and approval. The Minister may only make or vary methods which have been endorsed by the CAIC.  The CAIC must only endorse a method if it is satisfied that it complies with the Offsets Integrity Standard. Both the Minister and the CAIC must publish reasons for their recommendations and decisions. 

Disclosure provisions and transparency

To support greater public trust and confidence in the scheme, the Panel recommends that the Clean Energy Regulator Act 2011 be amended to maximise transparency, data access and data sharing, while enabling protection of privacy and commercial-in-confidence information. The Panel supports a default position that data should be made public, including carbon estimation areas, and recommends that the government explore a national platform to share information and data about the scheme, in the spirit of continuous improvement.

Scheme level integrity

The Panel recommends that the Climate Change Authority should provide advice to the Minister on the merits of a mechanism at the scheme level (e.g., the mandatory cancellation of a percentage of ACCUs generated under the scheme) to provide further assurance of additionality and conservativeness in a transparent manner. 

First Nations

  • To ensure adherence to the principles of free, prior and informed consent, the Panel has recommended amending the CFI Act to remove the option to conditionally register a project prior to obtaining native title holder consent.
  • The Panel also recommends that a member of the CIAC be a First Nations person. 

Best practice performance standards

The Panel recommends that carbon service providers and carbon market advisers, including agents, should be accredited and regulated, noting as an example the Carbon Market Institutes voluntary Australian Carbon Industry Code of Conduct

Next steps 

The Government’s response to the Chubb Review has recognised that these recommended reforms will have wide implications for carbon market participants and has indicated that the Government will work with stakeholders on implementation, including associated legislative amendments. 

The Panel made clear that adequate resourcing will be needed for this, concluding that: “Given the important role of ACCUs in the suite of climate mitigation policies and the essential need for their integrity to be unarguable, all the links in the chain need to be able to do the job required of them – and that means resourcing. There is no practical or cheap alternative.”

If you have any questions please contact our Resources and Energy team
 

Key Contacts
Elizabeth Harvey
Special Counsel
Elizabeth is a Special Counsel in our Resources and Energy practice.

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