Australia’s annual traded value of carbon credit units last year topped $1 billion for the first time and the trajectory looks likely to keep trending upwards. But carbon credits have been called into question for credibility and effectiveness, and the reform of the Australian regulatory and market landscape for Australian carbon credit units is a work in progress, Carbon Market Institute has found in a new report.
Key messages in its Evolving Markets, Emerging Solutions include Australia’s potential to become a powerhouse for carbon solutions domestically and in our region, evidenced by the sector’s tipping past the $1 billion sales mark .
“In 2024 many of the necessary pieces for the rapid scale-up of domestic and global carbon markets were assembled to enabled accelerated investment in decarbonisation and other climate solutions,” the institute’s chief executive John Connor said.
“There are new rules in place and reforms to champion carbon market integrity. These complement emerging corporate climate disclosure frameworks and standards to underpin market growth and transparency. There are also, as this report details, new refinements and tools emerging to support more accurate monitoring and reporting of emissions.”
Contributors to the report included Westpac, RepuTex, South Pole, Norton Rose Fulbright, Indigenous Carbon Industry Network, Gilbert + Tobin, Antithesis and WollemAI.
The megatrends
A common thread in the report was the strong connection between action on carbon emissions and the repair, restoration and protection of nature. This is being seen on the ground and in the shifting goalposts for corporate reporting.
There’s also the role of governance, data transparency and innovation in processes and practices, which is critical for attracting financial inflows for Australian carbon projects, and so we can capture export opportunities for our carbon expertise.
“Despite backward steps in the US, other nations are pressing ahead with international cooperation and Australia needs a carbon market strategy and engagement to match them,” Connor said.
Export market for Australian expertise
Contributors to the report, Norton Rose Fulbright’s Elisa De Wit, Harriet Salisbury and Charlie Bevis said that Article 6 of the Paris Accord, which was finalised at COP29 at Baku in November last year creates market rules that are particularly beneficial for investment in nature-basedemissions reductions projects in Asia-Pacific, with nations including China, India, Malaysia and Indonesia among those positioned to benefit.
Article 6 also finalises rules on international cooperation, so carbon markets can be integrated into diplomatic, trade and foreign aid agendas.
They say the carbon trading expertise developed by nations including Australia and Japan can be put to good use in the emerging carbon markets of Singapore, Thailand and Vietnam. That’s a major business opportunity for Australia’s sustainability consultants, carbon experts and technology providers.
As of the end of last year there were 4730 carbon projects across the APAC region generating credits under four international voluntary carbon standards.
By 2050, De Wit, Salisbury, and Bevis estimate the 10 member countries of ASEAN could be abating as much as 1.1 billion tonnes of CO2e every year.
The view from the bank
Westpac Institutional Bank four areas that need attention to resolve the barriers to actions. These include clearer strategic direction in policy and regulation, investment in fixed asset infrastructure for low emissions projects, research and development, and cross-industry and value chain collaboration.
Governance is critical
The importance of effective governance, reporting and the credibility of data and claims was stressed by Gilbert + Tobin. To minimise the risks of greenwashing and avoid the practice of “greenhushing” businesses can now utilise a robust set of codes that can frame up credible claims about climate action, including the use of carbon credits. The Integrity Council for Voluntary Carbon Markets also delivers a level of confidence with its standards for quality carbon credits.
Gilbert + Tobin partner Ilona Millar explained that the ICVCM is the successor to the taskforce on for Scaling the Voluntary Carbon Markets, which concluded its extensive multi-year stakeholder consultation in 2021.
“Many of the people involved in leadership and advisory positions at the TSVCM and now the ICVCM hold, or have previously held, senior national or global positions in environmental and climate policy, regulation and oversight of financial markets, banking and finance, industry, and environmental and associated science and technical fields,” she said.
The organisation has a set of governance policies and documents, and it has undertaken extensive public consultation around proposed approaches to developing frameworks for integrity.
The Fifth Estate asked what standing the principles might have in law if they are for a voluntary market.
“As an international group, the recommendations and approach developed by the ICVCM can be incorporated by national and sub-national governments,” Millar said.
“For instance, the UK’s Principles for Voluntary Carbon and Nature Market Integrity refer to the ICVCM as a global initiative that can ‘guide credit buyers towards activities’ that meet the UK’s criteria.”
For entities reporting under the International Sustainability Standards Board (ISSB) criteria, which require disclosure of the intended use of credits to meet climate targets, she said an entity could refer to their use of credits that meet the ICVCM integrity criteria.
Credits also have a place in general corporate responsibility strategies.
“High-quality carbon credits, when used to make high-integrity claims about climate action, can form an important part of global efforts to reduce greenhouse gas emissions, and to remove some of those emissions from the atmosphere,” Millar said.
“They should complement efforts to decarbonise, and for sectors that do not presently have the technological ability to make significant reductions in their emissions, carbon credits can assist in efforts to reach net zero.”
Indigenous carbon
Each year, Indigenous-owned and operated carbon projects earn carbon credits worth around $60 million, generating significant benefits for Country, climate and Indigenous communities, according to the Indigenous Carbon Industry Network.
At the time the report was compiled, there were almost 40 projects covering 24 million hectares comprising both savannah fire management and human-induced regeneration projects, and the potential to scale up is enormous.
ICIN notes that Indigenous people currently hold either a legal right or an “eligible interest” over 60 per cent of Australia’s land. This makes Indigenous people, “not just stakeholders – they are key decision-makers under free prior and informed consent rules that are to be tightened,” ICIN states.
Blue Carbon is another area where there could be multi-level benefits from Indigenous-owned projects. And with First Nations people having eligible interest in around 65 per cent of the Australian territory coastline, there is no shortage of potential sites.
“Indigenous carbon credits provide a vital source of independent revenue for Indigenous organisations,” ICIN wrote.
“This funding supports the future of carbon projects, sustains fire management programs, and creates meaningful employment for Indigenous people on Country. It also enables investment in cultural education and community development, strengthening both communities and landscapes for generations to come.”
The market potential
South Polecontributed an analysis of CO2 removal opportunities and the potential market directions, drivers and risk/return scenarios for both land-based and emerging technology solutions. It cited a CSIRO estimate that land-based carbon sequestration alone could remove 480 megatonnes of CO2 annually by 2050, if we scale up. It won’t get us all the way, however.
“Globally, limiting warming to 1.5°C will likely require carbon dioxide removal on the scale of 4-10 metric gigatonnes per year in 2050, equivalent to around 10% to 20% of today’s CO? emissions,” the report states.
Connor stressed that the work on reform in 2024 needs to continue, stating that both carbon and nature markets need to be seen as significant tools, not solutions, to decarbonisation and biodiversity challenges. They must complement and enhance other regulatory and public funding initiatives.
“It is important to have some humility in what markets can provide,” he wrote in the report.
Related