The Role of ACCUs in Australia’s Emission Reduction Strategy
ACCUs and Voluntary Carbon Offsets — what’s the difference?
The terms ‘carbon credit’ and ‘carbon offset’ are often used interchangeably, however, each has a specific meaning in the context of Australian carbon markets. Australian Carbon Credit Units (ACCUs) are purchased from multiple sources including carbon trading platforms, private brokers, or directly from the projects that generate the credits. ACCUs may be thought of as a domestic compliance credit, a form of carbon offset. Each credit represents one tonne of carbon dioxide equivalent (t CO2-e) emissions that has been stored, reduced, or avoided. When surrendered, they give permission for a company to generate carbon if there is a need to offset their emissions [1].
The government awards credits to projects where integrity criteria has been proven [2]. The projects can either sell the credits back to the government, to private vendors, or direct to companies [1]. In this scenario, carbon flows from emitters to regulators. Though companies that end up with excess credits do have options to sell them to other parties.
In contrast, carbon offsets are often associated with the voluntary carbon market and involve trading of carbon revenue between companies. The idea behind the voluntary market is that another party has reduced or avoided a tonne of CO2-e emissions, so a business can then buy the credit that represents that reduction and use that to offset their own emissions.
These two types of credit are traded in different markets: the regulated market for compliance-based credits such as ACCUs and the voluntary market for voluntary carbon offsets.
Who manages the markets and integrity principles?
The Clean Energy Regulator (CER) is responsible for administering the Australian Carbon Credit Units Scheme. The administrative tasks involved include registering new projects, managing abatement contracts, and issuing credits. The party responsible for ensuring ACCUs adhere to integrity principles set out in the Carbon Credits (Carbon Farming Initiative) Act 2011 is the Emissions Reduction Assurance Committee (ERAC), established under the same Act [3].
In contrast to the government run national compliance market, the management of voluntary markets and adherence to integrity principles are undertaken by private not-for-profit organisations such as Gold Standard and Verra (who manage the Verified Carbon Standard). The standards are developed and maintained by these private organisations and ensure the reduction or removal of carbon claimed by a project occurs. Projects are audited by independent third-party auditors whose work is overseen by the organisation governing the standard. These types of offsets are often referred to as Verified Emission Reductions (VERs) and may be traded internationally in the voluntary carbon markets.
ACCUs and The Safeguard Mechanism
ACCUs, for the purpose of offsetting greenhouse gas (GHG) emissions, are usually acquired by organisations that have compliance obligations under national legislation. The Safeguard Mechanism is the national legislation that requires emissions to be offset where an organisation exceeds its baseline [4]. The Safeguard Mechanism has recently undergone reforms proposed by the Labor Government, where an annual decline factor of 4.9% would be applied to Safeguard entities until 2030. The decline factor after 2030 is set to be reviewed in 2026 [3].
The CER believes the major source of demand for ACCUs will be from Safeguard Mechanism entities looking to secure ACCUs against their future liability, and demand from these parties is expected to continue to increase [3]. Though many Safeguard entities support having access to international offsets for compliance with the Safeguard Mechanism they are not eligible for use at the current time due to accounting issues with cross-border transfers and to enhance the transformation of the domestic economy. However, Government has not ruled out their use in future [3].
It is acknowledged that many Safeguard Mechanism entities are yet to fully develop their compliance strategies while exploring abatement opportunities or financial support through initiatives like the Powering the Regions Fund (PRF) [3]. It should be noted that ACCUs differ from Safeguard Mechanism Credits (SMCs). Eligible facilities that reduce their emissions below their baseline may be issued SMCs, which can then be held or traded with other Safeguard entities who may then surrender them to stay within their own baseline. SMCs are not considered to be carbon offsets because they are generated within a regulated emissions limit, which already constrains the emissions of Safeguard facilities [5].
Another source of ACCU acquisitions that has been increasing recently is by intermediaries. The CER’s definition of the role of these intermediary organisations is to facilitate the trading of units between the supply and demand sides of the market. Organisations included in this category include several of the larger banks that have begun offering these services.
How should a company go about acquiring and surrendering ACCUs?
If a company has an obligation to surrender ACCUs there are two ways that this can be achieved. The first is to open an Australian National Registry of Emissions Units (ANREU) account with the CER and source the credits on the open market. Credits may be sourced from projects that generate ACCUs, carbon trading platforms, or brokers. The second is to purchase and surrender the credits via a broker, who can surrender the credits on an organisation’s behalf [1].
The benefits of opening an ANREU account is that credits may be held and surrendered by the organisation at their discretion, giving more opportunity to manage and control the process. An ANREU account is also required for facilities that wish to generate and hold SMCs. This would be most suitable for organisations that choose to use ACCUs and SMCs as part of a long-term carbon management strategy.
On the other side, purchasing and surrendering ACCUs via a broker is simpler and doesn’t require an organisation to go through the process of opening an ANREU account. This approach may be preferable to companies that unexpectedly exceed their Safeguard baseline and do not expect to exceed it in future years.
The importance of having a robust process for ensuring the integrity of credits
Whether for compliance or voluntary purposes, the importance of credit integrity cannot be overstated, as it underpins the viability of the whole system. The ability to generate credits encourages cuts to emissions where possible, compensating for other areas of the economy where reducing emissions is not possible. While the system does encourage a reduction in emissions, it can also be thought of as maintaining the overall status quo in instances where emissions would have otherwise been additional. If a credit does not truly represent one tonne of abatement, this may even represent a net gain in CO2-e emissions.
Researchers have found instances where they believe organisations managing credit markets have been overstating emission reductions from projects such as avoided deforestation. In this example, the findings were that most projects did not significantly reduce deforestation and the methodologies being applied need urgent revision. However, these assertions are often difficult to prove due to a lack of data and the differing baselines that may be applied [6].
The Australian Government commissioned the Chubb review of the ACCU scheme in July 2022 after claims that many of the projects were producing ACCUs of low integrity. The independent review found that the scheme is sound but made several recommendations in the ACCU Review Implementation Plan, including increased transparency and separation between the roles of integrity assurance, regulation, and administration [7]. Additionally, the ERAC will be re-established as the Carbon Abatement Integrity Committee pending legislative changes, with Professor Karen Hussey being appointed chair of this committee in late 2023 [8].
Looking ahead
Achieving Australia’s commitment to achieve net zero emissions by 2050 will involve a collaborative effort by industry, government, and the Australian public. There will always be carbon emissions in the economy which cannot be avoided, and carbon offsets have a role both in reducing emissions over time and ensuring the unavoidable emissions are managed in a way that conforms with the national net zero commitment. However, it is important to be mindful that offsets are a tool that should be used only as a last resort for dealing with the small share of emissions that cannot be avoided.
Avoidance and reduction strategies must be the priority, as these lead to meaningful reductions in total emissions.
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References
[1] https://cer.gov.au/schemes/australian-carbon-credit-unit-scheme/australian-carbon-credit-units
[2] https://cleanenergyregulator.gov.au/schemes/australian-carbon-credit-unit-scheme/accu-scheme-methods
[3] https://consult.dcceew.gov.au/safeguard-mechanism-reform-consult-on-design
[4] https://cleanenergyregulator.gov.au/home/schemes/safeguard-mechanism
[5] https://cer.gov.au/schemes/safeguard-mechanism/safeguard-mechanism-credit-units
[6] https://www.science.org/doi/10.1126/science.ade3535
[7] https://www.dcceew.gov.au/climate-change/publications/accus-implementation-plan
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