Australia's Climate Active program drives ACCU demand

The Australian federal government-backed Climate Active certification program continued to drive voluntary demand for Australian Carbon Credit Units (ACCUs) last year, although future growth remains uncertain as the scheme will undergo a planned reform.

Cancellations of ACCUs for Climate Active certification reached 592,837 units in 2022, down from an all-time high of 625,705 in 2021, according to estimated data that the Department of Climate Change, Energy, the Environment and Water (DCCEEW) recently disclosed to Argus. Figures for 2023 are not yet available, according to the department, but cancellations may have reached a new high between 650,000-700,000 units, according to Argus estimates (see table). Each ACCU represents 1t of CO2 equivalent (CO2e) stored or avoided by a project.

The Clean Energy Regulator (CER) said it does not have a dataset of ACCU cancellations for Climate Active certification, despite having disclosed figures in some of its quarterly carbon market reports in recent years. It mentioned late last year that the program accounted for around 0.5mn of a total 0.8mn cancelled for voluntary purposes in the first three quarters of 2023, and later reported total voluntary cancellations of 290,146 units in the fourth quarter alone. Voluntary cancellations reached nearly 1.1mn units in 2023, a new record high.

Certification under the Climate Active standards is awarded to businesses that measure, reduce and offset their carbon emissions to achieve carbon neutrality. More than 700 certifications have been provided to entities including large and small businesses, local governments, and non-profit organisations.

But significant changes in climate science, business practices and international benchmarks since the program was established in 2010 prompted the federal Labor government to seek modifications aimed at driving a more ambitious voluntary climate action in Australia, following its separate reform of the compliance market's safeguard mechanism.

The DCCEEW late last year launched a consultation with proposals to reform Climate Active, which would require more climate ambition from businesses seeking to be certified under the program. The use of carbon credits to offset emissions that have not been reduced by businesses would be tightened, with a requirement that all eligible international offset units meet a five-year rolling vintage rule, replacing the existing post-2012 vintage requirement. Other proposals include mandating a minimum level of gross emissions reductions and a minimum percentage of renewable electricity use.

"The government is working through feedback on these proposals and will announce the consultation outcome later this year," a DCCEEW spokesperson told Argus.

No expected changes in eligible offsets

ACCUs have been representing a small share of the total offsets used for Climate Active certification at between 5.7-10.8pc in recent years, despite the estimated record high last year, according to DCCEEW estimates (see table). Organisations can currently use certified emissions reductions (CERs) and removal units (RMUs) under the program, as well as verified carbon units (VCUs) from the Verra registry and verified emissions reductions (VERs) from Gold Standard. The DCCEEW did not provide a breakdown of cancelled volumes per credit type.

No minimum use of ACCUs and no changes to the list of eligible international units are expected in the near term, following advice from a review from Australia's Climate Change Authority (CCA) in 2022. But some market participants have been asking for the removal of CERs, which account for the "vast majority" of carbon offsets surrendered by Australian organisations, according to utility AGL.

CERs are "outdated", utility Origin Energy said in its submission to the Climate Active consultation. "We consider it would be consistent with international carbon reduction mechanisms to introduce a clear end date to phase out the use of CERs from the program and ensure greater alignment with the more relevant Paris Agreement," Origin said. "This reform is considered an immediate priority, and of more urgent need than some of the other proposals in this consultation."

Uncertainties over future demand

More investor and activist pressure in recent years over the use of carbon offsets with perceived low levels of integrity have also been forcing companies to review not only their offset standards, but also claims of ‘carbon neutrality' and similar terms. One of the DCCEEW's proposals is to discontinue the use of ‘carbon neutral' to describe the certified claim and to choose a different description.

"A lot of the voluntary demand for carbon offsets in Australia has traditionally come from Climate Active, but the landscape is indeed moving quickly and the concept of carbon neutrality is being replaced by net zero," said Guy Dickinson, chief executive of Australia-based carbon offset services provider BetaCarbon and head of carbon trading at sister company Clima. This should drive more price stratification between carbon removals and carbon avoidance credits, he noted.

Telecommunications firm Telstra, one of the biggest companies in Australia, recently announced it will stop using carbon offsets to focus instead on reducing its direct emissions. It will no longer seek Climate Active certification as a result and will remove references that its plans are ‘carbon neutral' or ‘carbon offset'. This could prompt other businesses to follow suit, market participants said.

Another source of uncertainty over future voluntary demand comes from a DCCEEWW proposal that abatement from all ACCUs used under Climate Active would count towards meeting Australia's Nationally Determined Contribution (NDC) under the Paris Agreement. The use of ACCUs under the program have so far been treated as ‘additional' to Australia's emissions reduction target through accounting under the Kyoto Protocol. If the government goes ahead with such a proposal, this could disincentivise participation in Climate Active as organisations might consider this as "paying to help the government meet its targets through the voluntary action of businesses," utility EnergyAustralia warned in its submission.

There has been increased interest in emerging and alternate standards to those acceptable under Climate Active, such as the American Carbon Registry, Climate Action Reserve and Puro.Earth offsets, according to environmental marketplace Xpansiv's vice president of carbon and Australian energy, Peter Favretto. But Climate Active has reported positive growth in certified brands since its inception and will likely continue to create demand for offsets in the international voluntary market and the Australian ACCU market, he said.

"With the upcoming mandatory climate reporting legislation in Australia, and a similar atmosphere in other global jurisdictions such as the US and the UK, there is a growing demand that could lead to further growth in Climate Active certifications," Favretto added.

By Juan Weik