Australia to allow carbon market to propose new methods amid slow development

Australia launched a new process to allow any market participant to propose new methodologies for the generation of local carbon credits, marking a move away from the previous approach under which the government prioritized and developed new methods, the Department of Climate Change, Energy, the Environment and Water said May 21.

The method allows projects to generate Australian carbon credit units, or ACCUs, which are used for offsetting emissions on a voluntary basis and to meet targets under the country's emissions compliance scheme, Safeguard Mechanism.

The new process was implemented after being recommended by a government-backed independent panel, led by Australia's former chief scientist Ian Chubb, which was set up to assess the integrity of the ACCU scheme.

"The proponent-led model aims to encourage more innovative approaches to carbon abatement and will help to boost the supply of ACCUs to support our net zero ambition," Minister for Climate Change and Energy Chris Bowen said.

The new process comes after a popular method, called Human-Induced Regeneration, expired in 2023, with another method, called Environmental Plantings, retiring in September 2024.

This has left carbon project developers with few nature-based methods that can be implemented at scale.

"The new process will be particularly important as some of the earliest methods for earning carbon credits have reached the end of their life, and are no longer operational," said John Connor, CEO of Carbon Market Institute, Australia's carbon industry body.

The government-led method development process has proved to be too slow, Connor said, adding that none of the five new method priorities for 2022 have yet been finalized.

New process

Under the new process, a market participant can register a method with the Emissions Reduction Assurance Committee, or ERAC, an independent committee that assesses the compliance of methods against the legislated integrity standards.

All the method ideas will be published on a method development tracker platform to enable transparency and collaboration opportunities.

The participants will then submit an expression of interest, or EOI, to ERAC with more information on the method proposal, including details on the activities involved and how it will align with the integrity standards.

The primary criteria that ERAC will use to prioritize an EOI are the scale of abatement and proposal complexity, followed by secondary criteria such as innovation, co-benefits and potential adverse impacts.

Following ERAC's recommendation, the minister will prioritize a method after which the committee will help the participant develop it further.

After addressing industry feedback, the ERAC will assess the revised proposal for meeting integrity standards and advise the minister on whether the method can be implemented.

EOIs for the first round are due by July 12, 2024.

Potential new methods

"I think the problem is going to be ensuring that the method can scale," a carbon project developer said, adding that there were only a few big scalable opportunities, such as Integrated Farm and Land Management, or IFLM.

IFLM combines activities of several existing soil and vegetation sequestration methods, and the expired HIR, into a single method.

However, the method development has been delayed, after DCCEEW said that the draft required more consultation.

There might be subtle variations proposed to existing methods to appeal more to a particular niche such as reforestation method with adjusted rules to be more suitable for smaller landowners, said Lachy Ritchie, CEO of Kakariki Capital, a Sydney-based investment manager and project developer.

"I also expect that some lead organizations who have been working towards the stalled IFLM, will propose new methods capturing components of the IFLM "umbrella" method (such as a replacement for the now sunsetted HIR method)," Ritchie said.

He added that proponents would likely need to work with external consultants, thus requiring substantial investments and the DCCEEW would need to manage expectations and help participants understand the level of commitment and costs involved in developing a new method.

"Otherwise, I fear they [DCCEEW] will get an avalanche of sub-par draft methodologies and could quickly become bogged down in feedback and revision," he said.

Market participants have also raised concerns regarding the resource crunch within the DCCEEW.

"The fear is that this is going to slow down methodology development by creating more complexity, but the sincere hope is that it will speed up methodology development, because third parties can deploy their own capital and resources to method development, instead of relying on limited government resources to carry the load," Ritchie said.

Global comparison

China also used a similar approach while establishing its domestic voluntary carbon market, namely China Certified Emission Reduction, or CCER market, in 2012.

Under that framework, about 200 CCER methodologies were developed and approved.

However, China's CCER regime had to be paused in 2017 for project registration, as some methodologies were criticized due to integrity concerns.

When the country's environment ministry decided to reboot its CCER system in 2023, no projects were allowed to be registered based on those old methods.

To avoid integrity issues, the environment ministry took back control over methodology development. Since the CCER relaunch in 2023, only four methods have been released by the ministry.

"A simple solution to avoid the challenges faced in China would be to develop very clear guidance documents and even templates, clearly outlining the level of detail required," Ritchie said.