Australia’s carbon market is in crisis

Australia’s carbon market is in a state of crisis.

In just the last few weeks, new and serious doubts have been raised about the environmental integrity of Australia’s carbon offsets, the market value of the offsets has plummeted, and the Clean Energy Regulator has announced an abrupt change to rules governing more than 100 million offset units.

Carbon market participants are frustrated and angry, and some are facing big losses even as others are poised to pocket big profits. Above everything, the industry is pleading for the Morrison government – and emissions reduction minister Angus Taylor in particular – just to talk to them.

It’s a state of chaos that is undermining Australia’s only government backed carbon offset scheme, the otherwise good reputation of the Clean Energy Regulator (CER), and the flagship climate policy of the Morrison government.

Australia’s carbon offset regime is facing accusations that it lacks environmental integrity – from the former chair of the Emissions Reduction Assurance Committee (ERAC) no less – who says the bulk of carbon offset units issued by the federal government do not represent genuine reductions in emissions.

Professor Andrew Macintosh, who chaired the committee that oversaw the development of Australia’s carbon offset methodologies, says he considers that all of them have substantial flaws.

“All of the major emission reduction methods have serious integrity issues, either in their design or the way they are being administered,” Macintosh said.

“What is occurring is a fraud on the environment, a fraud on taxpayers and a fraud on unwitting private buyers of ACCUs, including private households who purchase ACCUs to offset their personal emissions.”

The claims made by Macintosh have prompted Australian Greens leader Adam Bandt to refer them to the Commonwealth Auditor General, the federal government watchdog, for investigation.

“When the former head of the government’s Emissions Reduction Assurance Committee reveals that the carbon credits scheme is ‘largely a scam’, we need an open transparent inquiry with powers to get to the bottom of it,” Bandt said.

On Thursday, think tank The Australia Institute published an additional analysis suggesting the committee charged with oversight of Australia’s offset methodologies continues to face questions around potential conflicts of interest amongst its members.

“It is critical that the organisations responsible for overseeing these schemes are independent and credible – both in perception and in fact – to ensure the veracity of any net-zero claim,” The Australia Institute’s Richie Merzian said.

“The independence of both the CER and ERAC is now in question, casting doubt over the integrity of the whole Emissions Reduction Fund.”

Carbon market analysts Reputex has also published a new analysis that shows Australia’s carbon market could become flooded with more than 100 million offset credits that had previously been locked away under government contracts, due to Taylor’s decision to allow these units to be sold into the open market.

It is a decision that has gutted the market value of ACCUs – with prices down almost 50 per cent since the start of the year.

The subsequent oversupply is likely to continue to suppress market prices for offsets, undermining the business case for any new carbon offset project currently under development.

“At this stage of the market’s development, the ongoing release of such a large volume of supply will continue to place downward pressure on prices, overwhelming much of the demand provided by investors and voluntary participants over the past 12-months,” Grossman said.

“The market now faces a mountain of supply to overcome. Depending on the timeline and scale of new demand from corporate and investor buyers, it could take 2-3 years for the market to soak up that surplus, and for prices to recover.”

Together, it amounts to a substantial crisis for both Australia’s emerging carbon market and the Clean Energy Regulator. It will require the federal government – whether it is the current Morrison government or a subsequent Labor government that inherits the problems following the next election – to intervene to rectify the issues and restore confidence in the offset regime.

As a start, this would include federal energy and emissions reduction minister Angus Taylor heeding the pleas from the Carbon Market Institute, as well as a 15-strong collective of Australia’s leading carbon market participants, to actively engage and consult with the industry about the future of the scheme.

But this is a minister that has actively participated in the undermining of the offset regime, having overseen appointments to the Emissions Reduction Assurance Committee and pushed for the creation of new offset methodologies – including those that award carbon capture and storage projects with offset credits – that now face serious questions of integrity.

In a statement, Taylor defended the offsets scheme, suggesting the criticism was politically motivated.

“Mr Macintosh was chair of the Emissions Reduction Assurance Committee for 5 years – from 2015 to 2020. As chair, Mr Macintosh was responsible for certifying to the Government that ERF methods met the legislated integrity standards. Is Mr Macintosh now suggesting he provided flawed advice to successive Commonwealth Ministers?,” Taylor said.

“It has a well-deserved reputation for world’s best practice integrity, additionality and conservatively crediting abatement.”

“Australian Carbon Credit Units are worth up to 10-times as much as some other voluntary units found overseas,” Taylor added.

The Clean Energy Regulator has been contacted for additional comment.