Are Carbon Credits Just Enabling Companies to Keep Polluting?
The Albanese Government’s plan for emissions reduction in the industrial sector has been welcomed by industry, but not by experts.
Written by Victoria Kent, Senior Investment Specialist
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We don't usually expect politicians to keep their promises. But in the case of the Albanese Government's election promise to reduce Australia's carbon emissions (by 43% below 2005 levels by 2030), it's a promise we are hoping will be honoured.
The government recently outlined how emissions from Australia's industrial sector will be reduced to meet our official targets. Given the industrial sector produces 28% of Australia's carbon emissions, it is crucial for the industrial sector to get on board.
The Albanese plan hinges on carbon credits, which relies on the integrity of the Australian Carbon Credit Unit system. Both elements have been called into question. Let’s explore.
Climate Minister Chris Bowen outlined reforms to the existing 'safeguard mechanism'. These reforms will work as an emissions trading scheme effectively. Emitters who reduce their annual emissions by a set amount are able to sell valuable carbon credits to those emitters who don't meet their requirements.
In an official statement, Bowen claimed “a reformed Safeguard Mechanism is expected to deliver 205 million tonnes of abatement over the end of the decade, equivalent to cutting emissions from Australia’s cars by two-thirds over the same period.”
But this plan has been criticised, and some believe it could actually put the goal of net zero emissions by 2050 at risk. The Australian Conservation Foundation warned allowing companies unlimited access to carbon credits would enable them to pay to keep polluting.
This was further supported by Climate Council's Dr Rayner:
“If Australia is going to tackle harmful climate change, we actually need emissions to go down and that means companies changing how they operate, not just paying for offsets to keep polluting as usual,”
The Climate Council argues carbon credits should only be used as a last resort, and only for the small share of emissions that cannot be avoided through process, technology and other operational changes.
How valid is our carbon credit system?
In 2022, the government commissioned a review of the integrity of Australian Carbon Credit Units (ACCU) after allegations some projects were earning credits without really adding to emissions abatement.
While this allegation was not found to be the case, the panel did suggest the 11-year-old system could be improved.
Why is this important?
The integrity of the carbon credits programme is essential, as Australian companies are increasingly buying the credits to help them meet their own emissions reductions targets.
The path to net zero
70% of the roughly 215 industrial facilities covered by the scheme, representing over 80% of scheme emissions, already have corporate commitments to net zero by 2050. This is promising.
But as we know, net-zero targets are not standardised – they take so many different shapes and forms.
You can learn more about the nuance of net zero targets, and the "wild west" of carbon credits in our article "Solving the new zero equation".
We believe companies, and countries, should be doing everything in their power to first reduce their own emissions, and only then should they be using a mechanism like a carbon offset.
Only time will tell whether the Albanese Government’s reformed Safeguard Mechanism is a step forward for genuine emissions reduction.