The federal Labor government’s mooted plan to issue free carbon credits to high polluters has been slammed by its own modelling consultancy, Reputex, which says it would kill the integrity of the Safeguard Mechanism.
Reputex, whose modelling formed the basis of Labor’s climate policy and its emissions reduction target of 43 per cent below the 2005 level by 2030, says the country could miss that target if it does not ensure that carbon credits reflect real and additional abatement.
Reputex is concerned about one of two options in the government’s consultation paper that would award some of the country’s 215 biggest emitters with free credits simply for being “below the average” in their respective industry sectors, and without having to prove any actual real abatement.
These so called “grey credits” could then be sold or banked, delivering a financial reward for being “cleaner” than the average.
But Reputex says they could undermine the integrity of the whole scheme and could amount to being an effective subsidy for high emitting fossil fuel industries such gas production.
“Just because you are ‘below average’ does not mean you are ‘clean’,” Reputex boss Hugh Grossman said.
“If credits used by industry do not represent 1 tonne of emissions abatement, and that credit is used to offset emissions – as is the case here – then we would not see any real emissions reductions.
“Emissions reductions would occur in accounting terms only. Moreover, the environmental integrity of the scheme – and Australia’s 2030 target – could collapse, which would require greater abatement efforts from other sectors.”
Labor’s push to make changes to the Safeguard mechanism is emerging as one of its most contentious policy areas, not from industry seeking to resist change, but from those concerned they will weaken Australia’s already weak climate achievements.
Labor has promised to add bite to the mechanism, which to date has been ineffective because it has simply allowed many companies and industries to lift emissions without penalty.
Its move comes as new doubts emerge over the integrity of carbon offsets issued under the Emissions Reduction Fund, which has led to a review of various methodologies by former chief scientist Ian Chubb.
Reputex says the option mooted by Labor for free credits could result in half of the country’s biggest emitter receiving a financial windfall instead of being required to reduce emissions.
This would even include the LNG gas industry, which makes up half of the country’s top 20 emitters and where half of all facilities would be given free credits and would not be penalised for any emissions increases.
“By definition, half of all LNG facilities perform better than an industry average, even though they are among the country’s largest emitting facilities”, Grossman says.
“These facilities would not be accountable for their emissions. Instead they would receive free credits, which could be banked, or sold to realise a windfall gain.
“Creating winners and losers within each industry creates a subsidy for activities that are only slightly cleaner. Making emissions intensive activities cheaper could risk locking in fossil fuel production, and would defer incentives to invest in low emissions technologies.”
Grossman says one way to address that problem is to use the alternative option in the government discussion paper, which would be a site-specific approach that would would require each to model its baselines according to it own trajectory to net zero by 2050.
And given most big emitters have already done this on a voluntary basis, this would make sense and ensure any credits are actually real.
“Policy design is at a major crossroads,” Grossman says. If market integrity is not prioritised, Australia’s ability to meet its 2030 target, and realise the economic benefits of the low-carbon transition – such as new investment and job creation – could be significantly undermined” he said.
Consultation on the proposals are due this week. Labor is expected to lay out its preferred framework in December, and plans to legislate it in early 2023 to ensure it can become law by July 1.
