On 9 January 2023, the final report of the independent review into the integrity of Australian Carbon Credit Units (ACCUs) and Australia’s carbon crediting framework (Review) (Report), was released. The Review commenced in July 2022 and was undertaken by an independent panel appointed by the Federal Government (Panel), which was led by former Chief Scientist Professor Ian Chubb. The purpose of the Review was to identify and advise on ways to strengthen the ACCU Scheme (Scheme) and to ensure that the Scheme maintains a credible and strong reputation that is supported by stakeholders as well as the broader community. Specifically, the Panel was asked to consider the issues raised in the Terms of Reference for the Review.

In the Report, the Panel concluded that Australia’s carbon crediting framework is sound. Further, the Panel found that abatement resulting from projects registered under the Scheme has not been overstated.  However, the Panel did acknowledge that improvements should be made to the Scheme. Specifically, the Panel recommended changes to improve transparency, clarify governance, facilitate positive project outcomes and co-benefits, and enhance confidence in the effectiveness and integrity of the Scheme. The Panel’s key findings and recommendations are detailed below.

The Review is considered by many to be an important process as the integrity of the Scheme is essential to driving investment in both ACCUs and carbon farming projects, which in turn can assist stakeholders in achieving their greenhouse gas (GHG) emission reduction targets. For more information regarding the basis of the Review, see our article Movements in Australia’s climate and energy policy.

Scheme governance

In the Terms of Reference for the Review, the Panel was asked to consider whether the:

• governance structure of the Scheme is fit for purpose; and
• Scheme’s legislative requirements are appropriate to ensure confidence in the Scheme’s integrity and good governance.

By way of background, the Scheme is established under the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act) and the Carbon Credits (Carbon Farming Initiative) Rule 2015. The Scheme was established by the Federal Government to incentivise the abatement of GHG emissions in Australia, and is currently governed and administered by the Clean Energy Regulator (CER), the Emissions Reduction Assurance Committee (ERAC), the Department of Climate Change, Energy, the Environment and Water (Department), and the Minister for Climate Change and Energy.

The Panel found that the current Scheme includes all the functions that are necessary for good governance, however it also found that the Scheme would benefit from the separation of the CER and ERAC, as well as the clarification of the CER’s roles and responsibilities in relation to the Scheme.

The re-establishment of the Emissions Reduction Assurance Committee as the Carbon Abatement Integrity Committee

ERAC, which is an independent statutory committee established under the CFI Act that assures methods under the Scheme, currently sits within CER. This creates a perception of a conflict of interest, as there is a lack of a clear distinction between the CER as the administrator and regulator of methodologies, and the ERAC as the assurer of methodologies. This has undermined confidence in the Scheme.

To address this issue, and to restore confidence and trust in the Scheme, the Panel has recommended that the ERAC be re-established as the Carbon Abatement Integrity Committee (CAIC) as a matter of urgency. The Panel has recommended that CAIC operate with clear and recognisable independence, accountability and with enhanced resourcing to ensure that CAIC’s functions can be carried out effectively, efficiently and independently. The main function of CAIC is recommended to be ensuring the Scheme’s integrity. The Panel has provided further recommendations regarding both the membership of the CAIC, including that at least one member of the CAIC should be a First Nations Australian with relevant expertise, and the resourcing of the CAIC.

Clarification of the role of the Clean Energy Regulator

The Panel found that the multiple roles of the CER, which include developing methods, registering and regulating projects, issuing ACCUs, supporting ERAC and administering the government’s purchases of ACCUs, results in potential conflicts of interest and risks the reduction of confidence in the Scheme.

The Panel has recommended that the role of CER be clarified so that the CER should:

• continue to be responsible for education regarding the Scheme and the ACCU market;
• simplify Scheme documents and improve access to information regarding the Scheme; and
• create a public registry of rulings and precedents related to the administration of the Scheme.

The Panel has also recommended that the responsibilities of the CER explicitly include the monitoring and publishing of information on the impact of the Scheme on resilience to the adverse effects of climate change as well as the protection of the natural environment of Australia.

Additionally, to reduce the perception of conflicts of interest between governing bodies of the Scheme, the Panel has also recommended that:

• the ERAC should be re-established under the CAIC (as detailed above);
• method development should be led by project proponents, with support from the Department (detailed further below); and
• the purchasing of ACCUs by the Federal Government should become the responsibility of a Federal Government entity separate to the CER.

Disclosure provisions and transparency

In the Terms of Reference for the Review, the Panel was also asked to consider whether the Scheme has appropriate transparency, including whether the reporting and publication of data could be improved, and if so, how it could be improved.

For context, the CER is bound by the privacy and disclosure provisions of the Clean Energy Regulator Act 2011 (CER Act), which concern information collected for the administration of the Scheme. In particular, commercial-in-confidence information has significant protection. The Panel has found that the Scheme’s current restrictions on data sharing and disclosure go further than what is required to protect commercial-in-confidence information and privacy, and are undermining trust and confidence in the Scheme. The Panel also found that more transparent data and information sharing arrangements would enable carbon market stakeholders and the broader community to manage potential project opportunities and impacts more effectively.

The Panel has recommended that the relevant provisions in the CER Act should be amended to maximise transparency, data access and data sharing, whilst enabling the protection of commercial-in-confidence information. This would support greater public trust and confidence in the Scheme. The Panel has also recommended that the Federal Government consider using an Australia-wide platform to share information and data about the Scheme held by different parties, such as carbon service providers and the CER. In the Nature Positive Plan, the Federal Government has already committed to establishing a platform for environmental information held by different organisations and governments, which could also be used to share information about the Scheme.

Method development and review

The Panel was asked to consider whether the process for developing methodologies for the Scheme are appropriate and effective. The Panel found that the current process for developing methodologies is no longer fit for purpose, as it involves unnecessary administrative complexities which reduce the likelihood of timely and effective GHG emission reductions. To address this the Panel has recommended that a transparent, project proponent-led process (instead of the current Minister-led process) for developing and modifying methods be established as soon as practicable. It is also recommended that the process reflect international best practice, that the CAIC assure the integrity of the methods and that the Department provides support for participants who may have difficulty participating in the Scheme. The Panel recommends that clear guidelines be drafted for:

• expressions of interest regarding the development of a new method, the modification of an existing method (which would become a module of a method), and/or a new project registration application to the CAIC; and
• transition arrangements for existing projects.

The Panel has highlighted that the qualities of the draft methods and modules must be tested through public consultation to assess whether each proposed method and/or module is fit-for-purpose and meets the Offset Integrity Standards (OIS) as well as broader Scheme principles. It should also be determined whether each proposed method and/or module is likely to cause adverse economic, social, or environmental impacts.

Offset Integrity Standards

The Panel found that the current OIS alongside the key Scheme provisions are consistent with good governance and support confidence in the integrity of the Scheme. However, the Panel also found that interpreting the OIS is complex. The Panel has recommended that The Offsets Integrity Standards be clearly defined in Plain English. It is recommended that the OIS also be supplemented with new Scheme principles that support best-practice project assurance, implementation and regulation and method development.

The Panel also found that the Scheme would benefit by reintroducing the following into the OIS:

• sequestration offsets projects should provide for adjustments to take into account cyclical variations; and
• GHG emissions emitted as a consequence of carrying out a project must be deducted from the net carbon abatement equivalence amount.

Scheme level integrity

The Report highlights that international bodies have been exploring the option of supplementing project-level and/or method-level risk management with scheme-level risk management. The Panel has considered this option for the Scheme, and has recommended that the CCA provide advice to the Minister on the merits of scheme-level risk management, as this could provide further assurance of additionality.

Human-induced regeneration, avoided deforestation, landfill gas and carbon capture storage methods

The Panel was asked to consider whether the following specific methodologies of the Scheme meet the Offsets Integrity Standards.

Human-Induced Regeneration Method

The Panel found that the Carbon Credits (Carbon Farming Initiative) (Human-Induced Regeneration of a Permanent Even-Aged Native Forest—1.1) Methodology Determination 2013 (HIR method) is sound and that it meets the OIS. However, in the aim of improving the application of the HIR Method, the Panel has recommended, amongst other things, that it be proponents that provide clear evidence of links between the nominated changed land management practices and the resulting abatement that occurred throughout the baseline period.

Avoided Deforestation Method

The Carbon Credits (Carbon Farming Initiative – Avoided Deforestation 1.1) Methodology Determination 2015 (Avoided Deforestation Method) will sunset on 1 April 2025, therefore after that date no new projects will be able to be registered with the Avoided Deforestation Method. There are currently uncertainties about whether any potential projects will be able to be registered with the Avoided Deforestation Method anyway, as it is uncertain whether there are any existing eligible land clearing permits, which are required to register an avoided deforestation project. Due to this uncertainty, the Panel has recommended that no new projects be registered under the Avoided Deforestation Method.

Landfill gas methods

The Carbon Credits (Carbon Farming Initiative – Landfill Gas) Methodology Determination 2015 (Landfill Gas Method) and the Carbon Credits (Carbon Farming Initiative—Electricity Generation from Landfill Gas) Methodology Determination 2021 (Landfill Gas Generation Method) were considered by the Panel. The Panel found that it has become common practice to extend the crediting period for landfill gas projects without adjusting the baselines. Significantly, the Panel has recommended that the baselines of new landfill gas projects should be adjusted during the lifespan of the project as necessary.

Carbon Capture and Storage Method

The Carbon Credits (Carbon Farming Initiative – Carbon Capture and Storage) Methodology Determination 2021 (CCS Method) was considered by the Panel. The Panel has not made any recommendations specifically about the CCS method, but did highlight that the recommended method development model would allow related methods for long-term carbon storage to be considered.

Other Panel recommendations

Other Panel recommendations include that:

• the CFI Act should be amended to remove the option to conditionally register ACCU projects on Native Title lands. Currently, projects can be conditionally registered prior to obtaining consent, which is not in alignment with the principles of Free, Prior and Informed Consent (FPIC);
• the Federal Government should continue to support capacity building in rural and remote communities, including those with First Nations Australians, in relation to participation in the Scheme;
• reforms relating to the participation of First Nations Australians’ in the Scheme should be aligned with recommendations of concurrent reforms and reviews that have been accepted by the Federal Government;
• carbon market advisors and carbon service providers should be regulated and accredited, building upon the current voluntary adherence to the CMI Carbon Industry Code of Conduct;
• procedures should be developed to support the transparency of different types of co-benefits associated with ACCUs, and that project proponents claiming co-benefits should provide verification of those co-benefits to the CER, and that should be done before information about the co-benefits are published; and
• the upcoming requirement for Climate Active organisations to use at least 20% ACCUs to meet their GHG emissions offsets should not come into effect, as the requirement is inconsistent with purpose of the Climate Active program.

Federal government’s response to the Report

The Federal Government has released an official response to Australia’s carbon crediting framework , where it states that it has accepted all of the Panel’s recommendations in principle. The Federal Government also recognises that the recommended reforms will have implications for a wide range of stakeholders, and it will work with stakeholders on the implementation of the Panel’s recommendations, with a further Federal Government consultation period to be announced in due course.