Further changes ahead for Emissions Reduction Fund as review recommendations are implemented

Background

In July 2022, the Albanese Government appointed an independent panel to review the integrity of ACCUs under the ERF. The panel, chaired by Ian Chubb AC, was formed in response to claims that the level of abatement achieved by certain projects that operate in accordance with the ERF was overstated. The panel was tasked with advising on ways to strengthen the integrity of Australia’s carbon crediting framework.

The Independent Review expressed support for the critical role that ACCUs play in Australia reaching its ambition to reach net zero emissions by 2050. More importantly, it found that while the use of ACCUs “are not alternatives” to decarbonisation, they are “complementary elements of a strategy to moderate global warming.”

The 16 recommendations presented in the Independent Review range from new policies to shifts in governance structures to improve the integrity and heighten the transparency of the scheme.

Implementation already underway

As the Implementation Plan notes, the Australian Government has already begun implementing some of the recommendations of the Independent Review. The first step was taken on 14 February 2023 in revoking the Avoided Deforestation method due to the Independent Review’s findings that questioned the additionality of projects under this particular method.

At the same time, the Government announced that planned changes to require Climate Active members to use a minimum of 20% ACCUs would not be made, in line with the Independent Review’s finding that such a requirement would be inconsistent with the flexibility that is central to the intent and purpose of the Climate Active program, and may be cost-prohibitive.

Legislative amendments to the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act) were passed on 30 March 2023, which included a new requirement that the Minister must not make or vary a methodology determination unless the Minister is satisfied the method complies with the offset integrity standards,¹ reflecting recommendation 5.2.2 of the Independent Review.

On 3 May 2023 the recommendation on clarifying the evidentiary standards required to demonstrate carbon abatement under the Human-Induced Regeneration method was implemented through a ministerial direction,² which required the Clean Energy Regulator (Regulator) to comply with the standards set out by the Independent Review. It is worth noting however that the Human-Induced Regeneration method is due to expire on 30 September 2023. The Implementation Plan makes clear that this method, along with the Native Forest from Managed Regrowth method due to expire on 31 March 2024 will not be renewed but will be replaced with the Integrated Farm and Land Management method (which is currently in development). New projects will no longer be able to be declared under the expired methods.³

This poses a potential problem for some project proponents seeking to rely on the expiring or replacement methods. The Regulator is in the process of dissolving the Emissions Reduction Assurance Committee (ERAC) and setting up a new Carbon Abatement Integrity Committee (CAIC) as part of the recommendation to institute a new proponent-led method development framework. The Implementation Plan advises that as a result of feedback from proponents concerned about the delay to new methodology determinations, the Government has moved method development functions and support to ERAC from the Regulator to the Department of Climate Change, Energy, the Environment and Water for immediate implementation. Additionally, the Government is considering whether to prioritise the development of three methods: the Savanna Fire Management method; Integrated Farm and Land Management method; and the new or varied landfill gas method(s) in order to push them through ERAC, or wait until the CAIC is set up. The CAIC is expected to be established from Q2 2024.

Priority Consultations

The next step outlined by the Implementation Plan is a round of consultations on those recommendations that have been prioritised for implementation. This will include consultations on:

• the proponent-led method development model;
• the role of the CAIC;
• the development of ACCU Scheme Principles and clearly defining the Offsets Integrity Standards;
• the registration and regulation of carbon service providers against the Carbon Market Institute’s voluntary Carbon Industry Code of Conduct; and
• the identification of co-benefits as part of the announcement to establish the Nature Repair Market.

Consultations will also be undertaken with Native Title bodies, other First Nations Australians and stakeholders on the recommendation to remove the ability to register projects on Native Title land prior to obtaining consent.

The consultation process will be held between June and November 2023. A discussion paper is due out shortly, with an opening for submissions, and stakeholder workshops to follow. The Government expects detailed proposals to follow in August and September and necessary legislative amendments thereafter.

Statutory review of CFI Act

In December 2023 the Climate Change Authority (CCA) is due to review the CFI Act, as it is required to do every 3 years.⁴  As recommended by the Independent Review, this will include consideration of whether a certain percentage of ACCUs should be cancelled periodically as a scheme level buffer to ensure abatement credited is conservatively measured. As the statutory review has broad terms to review the entire scheme, it is possible that the Government will be presented with additional recommendations that it will need to determine whether to build into the existing implementation pipeline.

Recommendations for later implementation

In late 2023 the Australian Carbon Exchange is expected to come online, making available an online platform for the purchase, clearing and settlement of ACCUs. The Implementation Plan advises that it will implement the recommendation to develop procedures to support transparency of co-benefits by providing for the identification of co-benefits through the Australian Carbon Exchange.

The Implementation Plan sets out that the remainder of the recommendations are to be implemented in the first half of 2024.  This will include:

• considering how to increase the transparency of scheme information
• consultation on the recommendation to regulate and accredit carbon service providers and carbon market advisors, and
• consultation on reforms to increase participation of First Nations Australians in the scheme.

How can we assist you?

For more information on the Implementation Plan or advice on how these changes could affect your carbon project, please contact a member of our climate change and sustainability team.