As governments and businesses around the world pledge to decrease greenhouse gas (GHG) emissions, carbon credit markets are emerging to help meet these goals. Here’s what you need to know about the Australian carbon credits.
What are carbon credits?
Carbon credits are measurable, verifiable emission reductions from certified climate action projects. Each carbon credit represents the removal or avoidance of one tonne of carbon dioxide (or its equivalent in other greenhouse gases) being released into the atmosphere.
Carbon dioxide and other greenhouse gas emissions behave like a blanket or a cap, retaining some of the heat the Earth would otherwise release into the air. When an excess of greenhouse gas is released into the atmosphere by burning coal, gas, and oil, or through agriculture, these events contribute to global warming.
In Australia, projects that meet eligibility criteria are issued with carbon credits known as an Australian Carbon Credit Unit (ACCU) based on the amount of CO2 emissions sequestered or avoided. Carbon farmers can choose to monetise these credits through selling ACCUs. ACCUs are issued by the Clean Energy Regulator, a government body responsible for accelerating carbon abatement for Australia. The Emissions Reduction Fund (ERF) establishes the methodology these projects are required to meet.
What are the different types of carbon credits?
There are two primary types of carbon credits:
- Voluntary Emission Reduction (VER): This credit is a carbon offset traded over the counter in the voluntary market. The voluntary carbon market includes all carbon offset transactions that are not purchased through a regulated carbon market.
- Certified Emission Reduction (CER): A CER is an emission unit generated by a regulatory framework to offset the emissions of a project.
What is a carbon offset?
Carbon offsetting is the act of cancelling out the CO2 emissions produced in one place by reducing emissions in another area. This is done by purchasing and then cancelling a carbon credit - a process known as retiring a credit. Once a credit is retired from a market, it cannot be sold or exchanged again.
In Australia, carbon credits can be retired either to the Australian Government through a carbon abatement contract, or in the secondary (voluntary) market. A carbon credit purchase creates income for a project designed to store, avoid or reduce greenhouse gas emissions.
What is a carbon project?
Carbon projects can be grouped into two categories:
- Avoidance projects avoid generating greenhouse gas emissions, for example, by substituting energy derived from fossil fuel with energy from renewable sources.
- Removal projects sequester greenhouse gas from the atmosphere, such as by planting and growing trees that capture and store carbon dioxide.
What are the most common carbon credit methodologies in Australia?
The Emissions Reduction Fund has established 38 methodologies for carbon projects that can qualify for ACCUs, with the most common being:
- Reforestation: Forest growers and landholders grow and maintain trees on land previously used for agriculture.
- Savanna burning: Emissions are reduced through fire management practices in the savanna landscapes of Australia’s North. The dry landscapes comprised of small shrubs, trees and grasses combined with the tropical heat make these areas particularly fire prone. By deliberately setting small fires early in the dry season, the frequency and magnitude of unplanned, high-intensity fires in the late dry season are reduced.
- Plantation forestry: Emissions are reduced through carbon sequestered in plantations, harvested wood products and permanent forests.
- Avoided deforestation: Emissions are reduced by projects protecting native forests that are permitted for clearing.
- Landfill gas: Emissions are reduced by improving, installing or re-establishing landfill gas collecting systems.
- Human-induced regeneration: Emissions are reduced by landholders regenerating native forest suppressed for at least 10 years.