Australian corporates trim use of local carbon credits

Australia’s Safeguard Mechanism has pushed up the prices of local carbon emission abatement contracts, so corporates have turned to foreign instruments.

Australia’s largest companies have trimmed their use of local carbon credits in favour of foreign offsets, as Labor’s signature emission reduction scheme evaluates the price of domestic instruments.

The Clean Energy Regulator said an annual review of 20 unnamed companies – it said accounts for more than 20 per cent of Australian emissions – found corporate use of Australian Carbon Credit Units fell 6 per cent from the previous year despite an increase in demand to offset emissions. Instead, the CER said use of international carbon credits rose 65 per cent year-on-year.

Hugh Grossman, executive director of Reputex, a carbon consultancy, said the trend was driven by recent price increases of ACCUs.

“The price of an ACCU is around $30 a tonne. Internationally, a credit can be sourced anywhere from $5 to $20 a tonne. Integrity of credits is important, but corporates that are voluntarily using credits will be driven by price, and the cost of ACCUs are expected to go up as the safeguard mechanism comes into play,” he said.

The strengthened safeguard mechanism – a scheme first introduced under the Coalition – is the centrepiece of federal Labor’s plan to reduce emissions. The scheme requires the 215 largest polluters to cut their annual emissions by about 5 per cent every year, a demand that is initially expected to be met through the use of carbon emission credits.

The scheme only allows the 215 corporates to use ACCUs, a design that will incentivise them to invest in technology to lower emissions but will likely drive up the price of the contracts.

The use of carbon credits is contentious. Opponents such as Greens leader Adam Brandt insist the instruments allow big corporations to avoid meaningful emission reductions, but Federal Energy Minister Chris Bowen insists the mechanism will incentivise investments in technology that curtail carbon dioxide output.

Labor is also pushing for greater transparency from Australian companies about how they will meet carbon emissions requirements and ambitions.

Labor has proposed new stringent financial disclosure rules, which would require companies to report their emissions, as well as scope 3 emissions from their customers and suppliers, from the 2024-25 financial year, which CER’s chief executive officer David Parker urged corporate Australia to back.

“We know there is growing interest from the community, shareholders, investors, regulators, and supply chains in the progress companies are making to reduce emissions,” he said.

“Now is the time for companies to participate in the CERT report and improve their emissions reporting capability.”

Labor hopes to use the reporting requirements to strengthen enforcement against so-called greenwashing – where companies make environmental pledges to pull in customers, then not meeting these commitments in reality.

Australia is joining a global wave of enforcement on the issue, but it is not universally popular among corporate executives. Several industry bodies have pushed back against the proposal, insisting it would have unintended consequences and expose companies to litigation.

The threat of greater enforcement is having meaningful impact, Australian regulators have said. The Australian Securities & Investments Commission in May said several Australian companies have corrected their exaggerated claims regarding environmentally friendly investments and products as a result of its oversight.