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The government’s review of the flawed carbon credits scheme is nuanced, political and confusing. By Mike Seccombe.

What the carbon credits review didn't say

Professor Ian Chubb (left) and Climate Change minister Chris Bowen, at Taronga Zoo.
Professor Ian Chubb (left) and Climate Change minister Chris Bowen, at Taronga Zoo.
Credit: AAP Image / Jeremy Ng

On a Sunday in late 2020 – he can’t recall the exact date – Professor Andrew Macintosh got a phone call from the then Agriculture minister, David Littleproud, seeking his help. They met at a trendy gin joint in the Canberra suburb of Fyshwick.

Littleproud proposed the establishment of a mechanism by which farmers could be rewarded for restoring native habitat and fostering biodiversity. Macintosh, one of Australia’s foremost experts on environmental law and policy and the director of research at the Australian National University law school, liked the idea.

Long story short, Macintosh and his team at ANU got an initial grant of $3.4 million to develop a model, which grew into a series of what were called “carbon plus biodiversity”, or C+B, trials across the country.

The plan, he says, was that landholders would receive grants to plant native trees and shrubs, benefiting wildlife. They also would be awarded credits for the carbon stored in those plants, which they could then sell. In all, some $66 million was invested, he says, but the scheme was still in its pilot stage at the time of last year’s election.

The idea survived the change of government, and in August Labor announced it would proceed to implement a “biodiversity certificates scheme”, with the market for biodiversity credits to be overseen by the Clean Energy Regulator (CER).

But in their joint announcement – which predictably failed to mention the work done under the previous government – Prime Minister Anthony Albanese and Environment Minister Tanya Plibersek indicated there was still much to be done.

“Over coming months we will be consulting widely on the detailed rules for [the] scheme – for example, the rules on how biodiversity benefits should be measured and verified,” the media release said.

As part of that process Plibersek’s department set up an expert advisory group to guide on such matters. Macintosh was on it, which seemed logical, given it had been his baby from the beginning.

“And then four minutes, four minutes before the first meeting, I get an embarrassed phone call from the first assistant secretary in the department, basically saying, sorry, you’ve been uninvited from the panel.”

He was told the CER had asked that he be removed. Macintosh made his “discontent” abundantly clear through bureaucratic channels, and wound up meeting with the deputy secretary, who apologised. But he was not reinstated.

He stresses that he has no ill will towards the Environment department. He understood they were in a difficult position, and did not want to precipitate a “stand-up stoush” with the regulator.

The reason the CER wanted him dumped is not hard to divine. In March, Macintosh went public with a claim that more than a billion dollars of taxpayers’ money had been wasted on projects intended to reduce Australia’s contribution to climate change, but which actually did not reduce our net emissions.

He was not the first to question the integrity of the system by which credits, called Australian carbon credit units, or ACCUs, were awarded – one for each tonne of carbon dioxide or carbon dioxide equivalent either not emitted or sequestered. But his claims carried weight because of who he was – a former associate member of the government’s Climate Change Authority, a principal author of a review of the government’s Emissions Reduction Fund in 2019 and, most relevantly, the former chair of the emissions reduction assurance committee (ERAC) – an independent statutory committee charged with advising on the “integrity standards” applicable to projects funded through the ERF.

In a series of papers, he and his six-member team of economists and ecologists focused on three methods by which ACCUs may be generated, and which account for about three-quarters of the credits issued by the CER.

The first is “avoided deforestation”, which simply means that landholders who had previously been granted permits to clear land would be paid not to do it.

The second is “human-induced regeneration” (HIR), intended to compensate landowners for allowing the regeneration of land that had been previously cleared, usually by simply destocking it.

The third method involves harvesting methane – a far more potent greenhouse gas than carbon dioxide – from large landfill sites and burning it to create electricity.

The criticism from Macintosh et al essentially was that the first method paid farmers for not cutting down trees they weren’t going to cut anyway, the second paid landholders for regenerating land that had actually never been cleared, and the third paid landfill operators whose projects were financially viable without the carbon credits.

As Macintosh summarised in The Saturday Paper at the time: “People are … getting credits for growing trees that are already there. They are getting credits for growing forests in places that will never sustain permanent forests. And they are getting credits for operating electricity generators at large landfills that would have operated anyway.”

He had other issues too, particularly about the CER’s reluctance to share data or engage constructively with criticism.

Macintosh called for the CER to be broken up. He called for reforms to the methodology under which the credits are issued, the repeal of hundreds of millions of dollars’ worth of “low integrity” credits already contracted. And he called for an independent inquiry.

And he got his inquiry, headed by Australia’s former chief scientist, Professor Ian Chubb. When its report came down last month, it was widely interpreted as a refutation of Macintosh and those who sided with him.

Actually it was far more nuanced, political and confusing than that. In essence, it found the system was not broken but nonetheless needed major repair.

While the review panel did not “share the view” that the policy was not effective, or that the level of abatement had been “overstated”, it made 16 recommendations, some of them involving major change.

It said “avoided deforestation” projects should no longer be eligible, that credits for landfill gas should be reduced and that there should be stricter oversight for regeneration projects.

It also found the “multiple roles of the CER, in developing methods, regulating projects and issuing ACCUs, and administering government purchase of ACCUs, results in potential conflicts of interest”. It recommended separating its functions, so the CER was no longer involved in the ACCU trade.

The report also suggested one reason for the “polar opposite views” held by supporters and detractors of the carbon credits regime was the CER’s “lack of transparency, meaning that third parties cannot access the relevant data and so different conclusions can be drawn, and all genuinely held”.

Macintosh considers the Chubb review validated most of his criticisms. And he was pleased when the Climate Change and Energy minister Chris Bowen promptly announced the government supported the recommendations “in principle” and would enact them.

Bowen also announced, the day after the Chubb review came down, the new government’s plan to revamp the safeguard mechanism, a Coalition policy touted as a means of reducing greenhouse emissions from Australia’s 215 biggest polluters, which in practice yielded no reduction.

The guts of it is that, starting from July, these polluters would be required to reduce their emissions per unit of production, 4.9 per cent a year, every year, out to 2030.    

And where they could not achieve the required reductions through cleaning up their industrial processes, they could fill the gap by purchasing offsets, including ACCUs.

Macintosh considers Labor’s changes to the safeguard mechanism and the promised reforms of the CER to be “a massive step forward” – except for one big flaw. All those ACCUs that he wanted repealed are still in the system.

“So,” he says, “going forward, all tickety-boo. The problem is with these existing projects. For avoided deforestation for existing projects – there’s 24 million ACCUs there alone.”

In total, he says, “you’re talking about 60 million tonnes of clearly suspect credits in those three main streams that are going to be in the supply chain, ready to be sold to safeguard facilities. And every one of them that’s not good means an increase in emissions in the atmosphere.”

It needs to be stressed here that Macintosh is a believer that offsets can produce real abatement and environmental benefit. Hence his willingness to engage with government.

Others are more hardline. Polly Hemming, acting director of the Australia Institute’s Climate & Energy program, argues that “nature-based” offsets are “too risky, and too prone to reversal” to be a credible way to reduce emissions.

“I don’t have a problem with offsets if they come from industrial sources,” she says, referring to situations where one company exceeds its reduction target and sells its credits to another that has failed to do so. But she opposes the use of land-based offsets.

Alex Hillman, lead carbon analyst with the Australasian Centre for Corporate Responsibility, has big concerns about the use of offsets by polluting companies to meet their compliance obligations.

“The current safeguard mechanism will allow unlimited use of offsets,” he says, which is at odds with nearly all global standards.

The European Union progressively reduced the permitted use of offsets and banned them in 2021. Britain does not permit them. China’s national emissions trading scheme limits them to 5 per cent, Mexico to 10, South Korea to 5. Canada has a limit of 75 per cent, and the only other country that allows polluters to offset 100 per cent of their emissions, he says, is Kazakhstan.

“No one else is above 20 per cent,” Hillman says.

As Chubb noted, the issue of carbon credits and offsets is deeply polarising.

But the focus of debate has shifted. It’s now not just between government and industry but between environmentalists and scientists of varying hues and the Clean Energy Regulator. And the CER is playing hardball, as Macintosh can attest, as a couple of examples further illustrate.

In an estimates committee hearing late last year, independent senator David Pocock grilled the CER about an incident he found “troubling and inappropriate”, in which one of its senior executives contacted a director of the Wentworth Group of Concerned Scientists, demanding changes to its submission to the Chubb inquiry. The executive concerned initially denied having done so but later corrected her evidence in a letter to the committee, and said she had apologised for the “robust” exchange.

A second matter Pocock raised related to a report commissioned by the CER from expert ecologist Rod Fensham, into the integrity of HIR projects in Queensland, which was never released – or paid for – apparently because Fensham found the program produced little carbon abatement.

The point here is that despite the election of a new government, and despite the efforts of Chubb and his committee, tensions continue.

And the fact that Pocock is troubled by it matters a great deal, for he, along with the Greens, controls the balance of power in the senate, and they are far from sold on the government’s safeguard mechanism, with its dependence on offsets.

The Greens leader, Adam Bandt, warned this week: “Labor wants to let coal and gas buy their way out of Australia’s climate policy and the Greens want to stop new coal and gas.”

Suffice to say, the climate wars continue. Those who backed Macintosh in his critique of carbon credits are not mollified. And the safeguard mechanism is not yet safe.

This article was first published in the print edition of The Saturday Paper on February 4, 2023 as "Where credits are not due".

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