All quiet on the giant flaw in Labor’s climate policy

There’s a strong consensus from independent experts that Australia’s carbon credit system lacks credibility.

In September, the government’s own climate advisory body, the Climate Change Authority, warned that short-term Australian Carbon Credit Units (ACCUs) were proliferating, with credits for carbon notionally abated for as little as a few years being used to offset permanent additions of CO2 and other greenhouse gases to the atmosphere. Moreover, they were often composed of high-risk “soil carbon” abatement methods prone to releasing carbon in the next bushfire or drought.

Those problems have enormous implications for the government’s only carbon abatement policy of note, the safeguard mechanism, under which a small number of heavy polluters are allowed to use ACCUs to offset their emissions above a slowly descending industry baseline.

Increasingly, these polluters prefer to use short-term credits. As the CCA noted, “units from projects with 25-year permanence periods made up 19% of safeguard surrenders for compliance in 2023-24, and 22% in 2024-25. These units now make up 26% of ACCUs held by safeguard entities.” As a result, polluters can buy and surrender a wholly insufficient number of units, which may well be based on fictional carbon sequestration, rather than reduce the emissions from their operations.

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So significant is this issue that in its current review of the mechanism, the Climate Change Authority specifically invited comment on whether the reliance on ACCUs should be in some way limited or subjected to discounts. In response, several submissions addressed the problem, with industry lobbying heavily for no change to current arrangements. A range of other stakeholders felt differently.

The Grattan Institute warned that “of the 7Mt fall in net emissions in 2024-25, 4.4Mt (63%) came from surrendering more credits, not from emitting less”. Those credits also include safeguard mechanism credits (SMCs), which are generated by on-site abatement under the scheme, but these only formed the minority of surrendered credits. “Exceeding a baseline, and offsetting, is now the norm rather than the exception.” Grattan wanted ACCUs to be discounted against the emissions they were offsetting, and a five year age-limit on ACCUs applied.

ANU’s Centre for Climate and Energy Policy suggested a discount on ACCUs against SMCs, or a mechanism-wide cap on use of ACCUs, or a fee on the use of ACCUs. The Australian Conservation Foundation suggested sectoral, rather than mechanism-wide, caps on ACCU surrenders. The Climate Council proposed an ACCU cap for individual facilities under the mechanism, based on their initial emissions.

Drawing from the coal mining sector’s reliance on surrendering credits, the Institute for Energy Economics and Financial Analysis noted that “affordability of offsets can … incentivise short-term decision-making that sustains emissions-intensive activity.”

Mining giant Fortescue went further than most, calling for the government to constrain ACCU use, which should only have a:

“transitional role for Australian Carbon Credit Units (ACCUs) where onsite abatement is not yet feasible and for genuinely residual emissions. ACCUs are not equivalent to permanent onsite fossil-fuel abatement. Nature-based credits raise material additionality, permanence, measurement, audit and transparency risks, while even a valid credit leaves the emitting asset and its energy system unchanged.”

Community independents Kate Chaney, Nicolette Boele, Sophie Scamps, Allegra Spender and Zali Steggall identified over-reliance on offsets as a key problem with the mechanism, and noted both the contested nature of the abatement actually represented by ACCUs, and the temporary nature of that abatement. Colleague Monique Ryan similarly criticised the reliance on low-integrity credits.

The Labor Environment Action Network rejected caps for ACCUs but suggested a two-thirds discount for ACCUs used to offset methane. The Australian Industry Group wanted “vintaging” — in which the age of useable ACCUs would be limited to five years. The Superpower Institute wanted a surcharge for use of ACCUs.

The National Farmers Federation complained about agricultural land being used to generate cheap ACCUs, often via the Human-Induced Regeneration method (now discredited and banned for new credits), though it opposed ACCU caps and discounts. Melbourne University’s Melbourne Climate Futures also criticised the impact of ACCUs on rural communities and called for both a hard cap and a discount on the use of ACCUs. Farmers for Climate Action and Climate Analytics called for a cap, and submitted a separate report on the land competition impacts of ACCUs, warning:

“Carbon markets can bring opportunities for farmers, but they should not be the first port of call for emission reduction. Agricultural land for sequestration is a finite resource, and offsetting should be a last resort when direct emission reductions aren’t possible, not simply a default least-cost option.”

With such extensive debate about the over-reliance on low-integrity ACCUs, the stage was set for the Productivity Commission to weigh in with an authoritative assessment of the issue via the submission it published this week. But in a contribution of fewer than four pages, the PC called for “no general restrictions on the use of ACCUs”, and as for the general problem that ACCUs are low-integrity, or completely worthless, it ducked the issue entirely. “Any concerns around ACCU methodologies or credits should generally be addressed directly rather than through safeguard mechanism settings.”

That is, the Commission is focused purely and exclusively on making sure the safeguard mechanism works as cheaply as possible for business, not whether it actually delivers on the scheme’s goals of reducing emissions from the sites of Australia’s worst polluters. And it entirely refuses to engage on the hard evidence that ACCUs do not reflect actual abatement, or on the land-use impact of the over-reliance on cheap ACCUs on agriculture and rural communities.

The Commission going MIA on the central problem of the only significant emissions abatement policy Australia has continues the official double-think around the safeguard mechanism: the evidence points to it being effectively a scam in which Australia’s worst polluters can pay a token fee to continue polluting using a credit system lacking in scientific rigour. With even the Climate Change Authority inviting stakeholders to respond to the issue, the Productivity Commission has raised questions about its own rigour and willingness to call bullshit on the government’s pet programs.