Chubb prunes carbon credit scheme, but concern lingers over fossil fuel offsets

An independent review of Australia’s carbon credit system has rejected claims that some offset methodologies amount to a “fraud on the environment,” while recommending a suite of more than a dozen “updates” to strengthen the scheme’s integrity.

The review, headed up by former chief scientist Professor Ian Chubb finds that the Australian Carbon Credit Unit scheme is “essentially sound,” but has room for improvement on its original design.

To this end, the review panel recommends a raft of changes – 16, in total – to clarify governance, improve transparency, and enhance confidence in the integrity of the scheme.

Key among those recommendations – all of which have been accepted, in principle, by the federal government – the panel calls for the closure of the controversial “avoided deforestation” methodology.

As RenewEconomy has reported, this deeply flawed offset allowed land holders promising to not cut down trees that they may never have had any intention to cut down to be issued offsets.

The review – the result of “six months of remarkably intensive work,” says Chubb – also recommends a tightening of two other controversial methodologies, including Human-Induced Regeneration and Landfill Gas.

Confidence in the integrity of Australia’s carbon offset scheme hit a new low in 2022 when the former chair of the scheme’s watchdog, professor Andrew Macintosh, turned whistle-blower, claiming serious and unresolved flaws in the methodologies used to issue ACCUs.

Macintosh said in March of 2022, in the final months of the Morrison Coalition government, that all of the major carbon offset methods under the federal Emissions Reduction Fund had serious integrity issues, “either in their design or the way they are being administered.”

And Macintosh went further to say that some of the methods under the ERF – established to purchase offsets on behalf of Australian taxpayers – amounted to an “environmental and taxpayer fraud.”

“People are getting ACCUs for not clearing forests that were never going to be cleared; they are getting credits for growing trees that are already there; they are getting credits for growing forests in places that will never sustain permanent forests; and they are getting credits for operating electricity generators at large landfills that would have operated anyway,” he said.

The Chubb Review, however, “doesn’t share this view,” reporting instead that it found the scheme to have been “fundamentally well-designed when introduced,” but with room for improvement, based on lessons learned through practical application and experience over its 11 years in operation.

The review also calls for some key changes to governance, including the establishment of a new body to oversee integrity and to replace the current watchdog, the Emissions Reduction Assurance Committee (ERAC).

The panel recommends the new body, called the Carbon Abatement Integrity Committee (the CAIC), should include a full-time chair and at least four part-time members with a range of skills, expertise and experience – and  should include at least one First Nations Australian.

The report also recommends stripping back the Clean Energy Regulator’s roles in the scheme, including the responsibility for Australian government purchasing of ACCUs, to avoid “actual or perceived conflicts of interest.”

In a statement on Monday, federal energy minister Chris Bowen said the Albanese government, having commissioned the review as one of its first orders of business following the May election, welcomes its findings and will work with market participants and stakeholders to implement its recommendations.

“The Panel’s recommendations will help ensure Australia’s carbon crediting scheme has the highest integrity, and contributes to achieving Australia’s emission targets,” Bowen said.

Carbon Market Institute chief John Connor also welcomed the findings of the review, which he says has been an important process to ensure Australia’s carbon crediting framework remains fit for purpose.

“This is a scheme that has developed and evolved over more than a decade, and investors and the community should be encouraged by the Independent Review Panel’s findings that its framework is sound, and the proposed improvements can also now be embedded to ensure a more transparent, robust system that can be scaled up,” Connor said.

“As the panel made clear, scheme improvements will require significant resourcing in the forthcoming May budget. CMI looks forward to consulting with our members on more detailed recommendations and working with the government on appropriate implementation.”

But not everyone is satisfied that the Chubb Review has addressed all of the concerns dogging the fledgling carbon market and its role in Australia’s broader climate effort.

The Australia’s Institute says the biggest problem with the review is that it ignores the problem of how many dodgy carbon credits have been issued – and how to identify them.

“Unfortunately, Professor Chubb’s review is silent about the most important issues facing our Parliament and our climate, namely how many dodgy carbon credits are still circulating in the Australian economy and how can we recognise them?” said TAI exectuive director Richard Denniss.

“Carbon credits will be central to the Albanese Government’s Safeguard Mechanism, which it hopes to legislate in the coming months. Without so much as an estimate of how many dodgy carbon credits are currently circulating in the economy from this review, it seems the safest way to proceed is to prevent the use of Australian Carbon Credit Units (ACCUs) in the government’s new scheme.

“Gas producers who plan on increasing their production and emissions will be buying millions of ACCUs every year to meet their obligations under the Safeguard Mechanism. Australians cannot be confident that what they’re buying isn’t junk,” Denniss says.

“The Chubb Review may have met its brief but ignores the elephant in the room: too many major emitters are buying ACCUs so that they can continue to pollute as usual,” said the Climate Council on Monday.

Climate Council head of advocacy, Dr Jennifer Rayner, says the most important question remains where and how will carbon credits be used.

This will depend on the framework and settings of the Safeguard Mechanism – also due to be outlined this week – but Rayner says that for the Safeguard Mechanism to work, there must be tight restrictions on the use of offsets.

“The Chubb Review should not be used as a licence for pollution as usual from Australia’s biggest emitters. We need real action now to cut emissions, not more cheap offsets on paper,” Rayner says.

Greenpeace Australia says the review has failed to rule out the use of “scam carbon offsets,” namely the ACCU method for Human-Induced Regeneration, that will allow big emitters to keep polluting.

“Big polluting corporations, including coal and gas companies buy carbon offsets to avoid and delay actually reducing or removing harmful greenhouse gas emissions in their own operations,” said Greenpeace Australia Pacific’s head of advocacy and strategy, Glenn Walker.

“The Chubb Review into carbon offsetting has failed to address the scam of a key ACCU method. Until this sham is removed from the system or fundamentally overhauled, emissions won’t actually be going down,” Walker said.

The Australian Conservation Foundation, too, claims to find “gaping holes” in the review’s findings, including areas of “murky” governance they say remain unaddressed.

“It is essential that the new integrity commission is fully independent and prohibits the appointment of people who have ties to the carbon credit industry,” says ACF CEO Kelly O’Shanassy.

The ACF also calls for an audit of existing projects using the “avoided deforestation” offset method, on top of the recommendation to end that part of the scheme.

“The carbon credits previously approved under this method, which is one in five credits issued under the Emission Reduction Fund, do not represent real abatement and are essentially junk credits,” O’Shanassy says.

But the CMI’s Connor says that until Australia has in place stronger investment signals for industrial decarbonisation, there is an urgent need to drive emissions reduction elsewhere.

“These aren’t just offsets of no value,” Connor told RenewEconomy on Monday. “One of the most important findings of the [Chubb Review] is that abatement [through the ERF] hasn’t been overstated, but there’s actually a whole bunch of things that can be done to improve the scheme.”

Connor says a big part of this, and a reform the CMI has been calling for for some time, is the establishment of a stronger guardian of integrity, and the splitting up of some of the governance tasks.

“Too much has been put on the CER’s plate,” Connor says, and “we’re keen to get on with [these governance reforms] as quickly as possible.”

Connor says the industry is also looking forward to seeing more detail on particular offset methods, including a more transparent link between various land management activities and the emissions being abated.