Carbon market confusion as offsets take another hit

The Climate Council has called for the federal government to push to pause on new coal and gas projects as debate intensifies over Labor’s proposed safeguard mechanism reforms and as the credibility of carbon offset schemes is once again cast into doubt.

In a statement issued on Wednesday, the Climate Council proposes approvals for new fossil fuel projects be put on hold until a beefed up Environment Protection and Biodiversity Conservation (EPBC) Act can properly assess new polluting projects.

The call comes as the Albanese government works to push through a number of reforms to a core plank of Australia’s national decarbonisation scheme, the Safeguard Mechanism, to drive Australia’s biggest polluters to cut their emissions.

But opinions are divided over the effectiveness of these reforms, and particularly on the role in the scheme of carbon offsets – which were the subject of a damning Four Corners report aired by ABC TV on Monday night.

The investigation by Four Corners found that portions of forests linked to carbon credits traded by US company NIHT Inc. were being logged, bringing into question the legitimacy of any future credits sold. NIHT maintains any credits already sold do represent genuine abatement.

Several major Australian companies have bought carbon credits from NIHT in the past to offset their emissions, including Australia Mutual Bank, Active Super, Gilbert + Tobin, Corrs Chambers Westgarth, Planet Ark, and the Sydney Opera House.

Those companies bought the credits under the Climate Active program.

The Australia Institute has since referred the Climate Active to the competition regulator, the ACCC.

The Australia Institute is alleging the scheme is potentially misleading and deceptive under consumer law, ultimately because a Climate Active endorsement doesn’t mean a company or product needs to actively lower their emissions.

TAI says that a Climate Active endorsement implies to consumers that a company is actively reducing its emissions across its operations operations – as opposed to buying up credits to give business-as-usual activities a green shine.

For example, Tokyo Gas, a Japanese company with shareholdings in the Darwin LNG Project, the Pluto LNG Project, the Gorgon LNG Project and the lcthys LNG Project, bore the Climate Active badge on its homepage as late as August last year. The fine print showed the badge was for its Australian offices only, not the 380,000 tonnes of CO2-e that is its share of those LNG projects.

Cooper Energy also wears the Climate Active endorsement, claiming to be Australia’s “first carbon neutral gas supplier”. This title applies to its use of carbo offsets however, and not emissions reduction activities.

In October, federal energy minister Chris Bowen said international credits wouldn’t be allowed to be used in the Safeguard Mechanism because they lack integrity. This and other reforms to the Safeguard Mechanism aim to tighten up the carbon reduction scheme and make it more effective.

But opinions on the substance of the reforms – including the introduction of a new kind of tradable offset called a Safeguard Mechanism Credit – are sharply divided.

And this week the Greens told Labor they would only support passage of the reforms if Labor agreed to put a stop to new coal and gas mines.

Labor is yet to respond to the ultimatum, but on Wednesday the Climate Council suggested putting a pause on new coal and gas, just as a start.

“To ensure that new projects do not blow Australia’s emissions budget and scuttle the intended benefits of reforming the Safeguard Mechanism, the Australian Government should ensure that any proposed new entrants to this scheme have passed a rigorous environmental assessment,” Climate Council CEO Amanda McKenzie said in a statement.

“The Safeguard Mechanism is not designed as a review process for new projects, but the EPBC Act is. Any new project which is expected to produce harmful carbon pollution of 100,000 tonnes or more a year, which is the threshold for the Safeguard Mechanism, should be considered under the EPBC Act regardless of whether it triggers any other current criteria.

“New projects under the Safeguard Mechanism should be subject to scrutiny under a stronger EPBC Act to ensure that they won’t drive more harmful climate change and put a safer climate further out of reach.”

The Climate Council proposal could be the politically expedient thing for the federal government to do, as it faces a rerun of the 2009 Greens-Coalition alliance that torpedoed the Carbon Pollution Reduction Act over the mechanism changes.

What are we working with?

The Safeguard Mechanism is a compulsory scheme that requires Australia’s largest greenhouse gas emitters to keep their net emissions below a baseline limit. Around 215 facilities in Australia produce more than 100,000 tonnes of greenhouse gases a year, accounting for 28 per cent of Australia’s total emissions in 2020-21.

The changes proposed by the government in January include requiring those entities to cut emissions by nearly 5 per cent a year until 2030.

But they also give the country’s biggest emitters unlimited access to carbon offsets, via both Australian Carbon Credit Units and Safeguard Mechanism Credits, and deliver another $600 million in government funding to help cover the cost of reducing emissions.

The compromises are a “a pro-competitiveness measure, a pro-climate measure and a pro-industry measure”, according to federal energy minister Chris Bowen.

The Greens – whose support will be needed to get the changes through Parliament – disagree, on many fronts, but this week decided to make just one (very big) demand for an amendment, and work through their other concerns with Labor.

The Climate Council now appears to be trying to turn down the heat in the debate by seeking a middle ground.

“The Australian government is pursuing two important reforms to our federal policy toolkit for driving down emissions, but these shouldn’t proceed on parallel tracks.

“New projects under the Safeguard Mechanism should be subject to scrutiny under a stronger EPBC Act to ensure that they won’t drive more harmful climate change and put a safer climate further out of reach.”

Someone else calling for calm is the Carbon Market Institute CEO John Connor, who in his own response to the Four Corners report wants a balance of close scrutiny and regulation with progress in the Australian market.

“As well as calling out bad behaviour, we need to focus on ongoing improvements in governance, transparency and regulation, as well as reforms to drive at-source decarbonisation,” Connor said.

“It is also important not to dismiss genuine measures to reverse deforestation. According to UN estimates, approximately 12 million hectares of forest are destroyed each year, and if we are to end nature loss by 2030, we will need $350 billion in finance per year by the end of the decade,” said Connor.

“With appropriate guardrails, carbon markets have a role to play here.”