What do landowners and business operators need to know about carbon credit projects?

Carbon credits have gained increasing interest in the Australian market; encouraged by a combination of the Australian government’s ambitious emissions reduction targets and the rising focus by Australian businesses and investors on environmental, social, and governance (ESG) policies, sustainability, and voluntary carbon neutral commitments. This Fact Sheet explains what you need to know about carbon credit projects and how you can get involved.

What is a carbon credit?

The Australian Carbon Credit Unit Scheme (ACCU Scheme, previously known as the Emissions Reduction Fund) is Australia’s carbon crediting scheme established in 2015. The ACCU Scheme credits Australian landowners and businesses (called project proponents) for adopting new practices and technologies that either-

1. avoid the release of greenhouse gas emissions, or
2. remove, capture, and sequester (ie store) carbon from the atmosphere.

Project proponents earn one Australian carbon credit unit for every tonne of carbon dioxide equivalent emissions stored or avoided by a project.

What do you do with a carbon credit?

Carbon credits can be used towards achieving your own carbon neutral targets or they may be sold to businesses which want to do the same.

Carbon emission reduction targets are being mandated or otherwise voluntarily adopted by businesses and governments as part of the global push to reduce greenhouse gas emissions. Businesses are measuring and reporting their carbon emissions and implementing changes or new technologies to achieve real reductions in their emissions output. However, in most cases, business cannot yet operate without producing some carbon emissions.

Once bought or generated, carbon credits can be ‘cashed in’ with the Clean Energy Regulator (the Regulator) in exchange for a carbon offset certificate. The certificate allows the business to claim carbon neutrality or to offset its emissions where it is unable to achieve real ‘zero’ emissions by avoidance or reduction strategies.

Businesses which say they are ‘carbon neutral’ or ‘net zero’ are not operating on a real zero emission basis but instead are using the ACCU Scheme to offset the emissions they still generate.

What is the demand for carbon credits?

The Australian government is the largest purchaser of carbon credits. Represented by the Regulator, reverse auctions are held periodically where successful bidders enter into delivery contracts to sell existing or future carbon credits to the Australian government.

Otherwise, carbon credits are sold on the private market to state and local governments or businesses voluntarily looking to offset their emissions, or businesses which have been statutorily required to offset their emissions to meet the Australian government’s ‘safeguard mechanism’. The safeguard mechanism requires the highest greenhouse gas emitting companies to reduce emissions below a baseline or purchase carbon offsets.

The Regulator is in the process of developing an Australian Carbon Exchange to simplify the private sale of carbon credits. In the meantime, the Carbon Market Institute’s Carbon Marketplace contains information about projects generating credits and a market directory for organisations selling carbon credits. Alternatively, the Regulator’s project register can be searched to identify parties that may have carbon credits for sale.

What kind of projects can generate carbon credits?

Projects are categorised as either emissions avoidance projects or sequestration projects. Some examples include:

1. Livestock-reducing greenhouse gas emissions by feeding dietary additives to milking cows.
2. Agriculture-reducing greenhouse gas emissions from fertiliser in irrigated cotton.
3. Commercial-reducing greenhouse gas emissions by improving the energy performance of a building that is rateable under the National Australian Built Environment Rating System (NABERS).
4. Forestation-vegetation projects, such as reforestation and revegetation, to capture and remove greenhouse gas emissions.

Further examples of the types of projects that can be undertaken are found on the Regulator’s website. Importantly, the project must also satisfy the following requirements:

1. The newness requirement-it must be a project that is not already being implemented.
2. The regulatory additionality requirement-the project must be a voluntary project, not a project already required to be carried out by law. An example of a project that would not meet this requirement is a project that involves planting trees where that was already required to satisfy a condition of a development approval.
3. The government program requirement-the project cannot be carried out under another Commonwealth, State or Territory government program or scheme. If the project is already incentivised under another government program, it will be excluded from participating in the ACCU Scheme.

As of July 2023, over 1,588 ACCU Scheme projects have commenced and over 129,964,600 carbon credits have been issued.

Who can run a project?

A project proponent is the person registered with the ACCU Scheme and is responsible for carrying out the project. An important consideration of conducting an ACCU Scheme project is deciding who the project proponent will be.

This must be considered before applying to register a project and before entering into any agreement with third parties in relation to the project.

To register a project with the ACCU Scheme you must have –

1. the legal right to carry out the project on the project land, and
2. a lawful right to be issued all carbon credits that may be created as a result of the project activities.

The chosen project proponent will be legally responsible for meeting all obligations under the Carbon Credits (Carbon Farming Initiative) Act (CFI Act) for the life of the project.

The project proponent can be a single person, multiple people, or an organisation.

A landowner may authorise another party (such as a tenant or carbon service provider) to register a project as the project proponent.